The preliminary data from the CME group shows that the option traders are seeking downside protection in the Aussie, which signals a cautiously bullish outlook.
Huge build up in near-the-money Puts
CME data show the open interest (OI) in 0.7750 Put options jumped by 176 contracts on Friday. The OI in the 0.7650 Put rose by 335 contracts, while 307 contracts were added in the 0.7550 Put option. The OI in the ITM calls fell by 245 contracts, while the OI in ATM calls rose by 361 contracts.
The fact that OI jumped in 0.7750 Put and 0.7650 Put on Friday suggests hedging activity against long spot positions.
Yield differential is stagnant
The spread/difference between the Aussie 10-year bond yield and US 10-year Treasury yield narrowed last week from 44 basis points (bps) to 0.38 basis points.
Aussie stuck at key hurdle, overbought
On technical charts, the currency pair looks overbought as per the 14-day RSI. Interestingly, the overbought conditions are also making it difficult for the AUD/USD to take out 0.7831 (23.6% Fib R of 1.1080-0.6827).
Thus, investors buying downside insurance as suggested by the options activity seems logical.
CAD/USD: Investors buy OTM puts
The CME data shows a total addition of 412 contracts in the CAD/USD Put options OI as opposed to a net reduction of 55 in the call options OI. The details reveal fresh build up in OTM Puts - 0.7850, 0.7800. ITM calls saw a drop in the OI by 115 contracts.
The options activity suggests the investors are seeking downside protection in the Canadian dollar after having priced-in the hawkish BoC.
The USD/CAD pair is oversold as per the 14-day RSI. The weekly RSI is almost oversold as well. Hence, a correction in the CAD cannot be ruled out.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD regains traction, recovers above 1.0700
EUR/USD regained its traction and turned positive on the day above 1.0700 in the American session. The US Dollar struggles to preserve its strength after the data from the US showed that the economy grew at a softer pace than expected in Q1.
GBP/USD returns to 1.2500 area in volatile session
GBP/USD reversed its direction and recovered to 1.2500 after falling to the 1.2450 area earlier in the day. Although markets remain risk-averse, the US Dollar struggles to find demand following the disappointing GDP data.
Gold holds around $2,330 after dismal US data
Gold fell below $2,320 in the early American session as US yields shot higher after the data showed a significant increase in the US GDP price deflator in Q1. With safe-haven flows dominating the markets, however, XAU/USD reversed its direction and rose above $2,340.
XRP extends its decline, crypto experts comment on Ripple stablecoin and benefits for XRP Ledger
Ripple extends decline to $0.52 on Thursday, wipes out weekly gains. Crypto expert asks Ripple CTO how the stablecoin will benefit the XRP Ledger and native token XRP.
After the US close, it’s the Tokyo CPI
After the US close, it’s the Tokyo CPI, a reliable indicator of the national number and then the BoJ policy announcement. Tokyo CPI ex food and energy in Japan was a rise to 2.90% in March from 2.50%.