Will Australia's Q2 GDP Next Week Disappoint?
Saxo Bank | Aug 28, 2014 05:24AM ET
Background
A bit of chatter came out yesterday that not only may Australia's second-quarter GDP data on September 3 disappoint, but it could even be negative on a quarter-on-quarter basis. I don't have a firm view on this but what’s interesting is we just received a strong private capex number earlier this morning - in at +1.1% against -0.9% estimated - a result which caused the AUD to pop up to this 0.9360 level.
A break down into the numbers suggests the print may be lacking in quality, as spending on equipment, plant and machinery seemed to disappoint. For those with a simpler inclination that the GDP figures could disappoint and are looking to play the event (hoping for a move back down to 93c if they are right). There are a number of ways to play this, but the simplest is picking up short-dated inexpensive puts.
Management and risk description
- Spend 10 basis points p in premium and pick up the Sep 3, 0.9300 strike puts (Delta 16%, Vol. 5.20% ref. A$0.9360)
- Downside Side -10 basis points, as you lose your premium
- Upside around +70 basis points if we get to 0.9300 level on or before close of September 3.
Be aware that: An in-line to better-than-expected GDP print would probably be supportive for AUD strength and negative for the trade idea. With the long upcoming weekend in the US, with Monday being a holiday and next week's key focus being on the September 4 ECB meeting, we could see the potential for increased volatility. In the very near term (today and Friday), the AUD feels like it could make a run for 00.94.
Parameters
Entry: Around 10 basis points premium, 0.9300 strike Sep 3 puts.
Stop: Premium, option expires worthless and you book a 10 basis points loss, or you can still potentially sell the option for 1-2 basis points.
Target: 0.9300 or lower, depending on volatility as it should spike if we have a move down, option should be worth around +70 basis points.
Time horizon: 1 week, GDP print being the trigger and options also expire on the same day.
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