AUD/USD: Risk reversals at 1-month high & Vols lowest since July, further gains on cards?

AUD/USD continues the ascent; now trading at 0.7840, despite the RBA’s cautious tone and a weaker-than-expected China trade data release.

The currency pair is up 1.38% from  the October 6 low of 0.7733. The options market activity suggests the corrective rally is likely to continue in the short-run.

Risk reversals at 1-month high

  • The 25-delta risk reverals gauge currently stands at -0.625; the highest since mid September. A negative number indicates Puts (downside bets) are more expensive (more in demand) as compared to Calls (bullish bets).
  • Still, an improvement to one-month high adds credence to the ongoing technical recovery in the spot.

Vols at lowest since July

  • The one-month at-the-money (ATM) volatility gauge fell to 7.575 yesterday; the lowest since mid-July. Implied Volatility spikes when the market is bearish on the underlying and vice versa. Thus, a drop in the implied volatility (estimated volatility) indicates the AUD is likely to remain bid in the short-run.  

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