RBA Surprises Market

Introduction

The Reserve Bank of Australia sent AUD tumbling overnight as it cut the benchmark interest rate for the nation to 1.75%. The central bank mentioned that growth this year was not at the pace expected whilst it indicated a lower inflation outlook than previously anticipated. Its Antipodean cousin suffered too, partly due to poor Caixin manufacturing PMI from China. As London begins its trading week, the market looks ahead to the US employment rate and non-farm payrolls figures on Friday May 6th, with the former figure expected to print as it did last month, at 5.0%.

 

Asian Session

USD/JPY has also taken a hit this morning and trades below the 106.0 level right now, the first time that the pair has been this low since October 2014. This comes despite the Golden Week holidays that lead Japanese markets to be closed. Notable support on the downside can be seen at 105.45 and subsequently 104.97.

Bloomberg reports that the decision by The RBA to slash its main interest rate during APAC trading was due to the fact that industries outside of the mining sector were seen as in need of a boost. Governor Glenn Stevens pointed out that there was not too much concern regarding risks to the Aussie housing market.

 

The day ahead in Europe and NY

EUR/SEK trades at approx. 9.1800 ahead of industrial production data which prints out of Stockholm at 08:30 BST today. PMI figures were released from individual regions within Europe yesterday with mixed results, whilst the continent-wide figure proved better than expected. European PPI data is released at 10:00 BST today too, whilst the European budget is released and the European Commission releases its economic growth forecasts.

Cable traders will pay attention to manufacturing PMI info. released at 09:30 BST, with the currency pair trading at 1.4727 currently. The market will then look to Redbook and ISM New York Index figures after the European lunchtime, with speeches from FOMC member Mester and BoC governor Poloz also orating later.

 

FXO

As USD/JPY spot continues to move lower, the currency options space in this regard feels nervous. The one week 25-delta risk-reversal has traded at a volatility differential of 2.0%, bid for the downside.

Within the retail currency options market at Saxo Bank A/S, 82% of traders are bid for the downside regarding USD/JPY. Similar bias is notable in XAG/USD options where 90% of traders favour long put and/or short call options. Within the EUR/USD space, a slight shift is notable in the fact that 57% of traders now favour the upside. There has been a 50% split for quite some time regarding options in this currency pair.