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Macro and Vol Commentary

Australia Data Downturn

  • The rise in unemployment across the globe looks set to compound headwinds to the global economy in the long term. Australia is no exception, rising to 5.23% as of April 2020.
  • Total employed subsided to 13.02m in March from 12.94m in November 2019, with an increase in part-time work
  • Retail sales have been falling in 2020 due to bushfires and now the coronavirus, falling to 1.82% y/y in February 2020
  • We expect this data to deteriorate in March and April as the lockdown takes hold
  • Total turnover did improve in February to $16,503mn, up from $18,298mn in January
  • The trade balance for February softened slightly to $A4,361m down from $A5,210m
  • Exports of iron ore fell in Q1 2020 to 123.3m tonnes from 219m tonnes in Q4 2019.
  • Coal exports were marginally softer in the first two months of 2020 at 14.67m tonnes and 13.65m tonnes respectively. Down from 16.36m tonnes in December 2019
  • As China’s economy gets back online, we expect exports to be supported. However, workforce restrictions may cap exports
  • The housing market has seen lending fall slightly in Q1 2020 to $A1,110bn from $A1,196.7bn, Q1s figure was up 3.2% y/y
  • In the construction sector, dwellings approval nearly halved in Q1 to 28,794 units from 43,679units in Q4 2019
  • Australia’s Mfg PMI has held up relatively well so far in 2020 at 49.7 in March
  • We expect GDP to weaken in Q2 2020 with forecasts for a contraction in 2020

Australia’s economy has been relatively resilient to the decline in market sentiment

  • The more relaxed lockdown restrictions in conjunction with the accommodative conditions from the central bank
  • The RBA minutes this week will add some clarity to the central bank’s monetary policy, but we do not expect to see QE scaled down, especially with global trade flows set to fall and support needed
  • As of mid-March, the RBA had purchases AUD41.5bn of bonds, but there could be a trend of smaller daily purchases developing
  • A hawkish indication from the RBA would give rise to the AUD

Despite being resilient, Australia’s economic data is starting to weaken and expect that to continue. Weak global trade flows and poor data from China will impact the economy. We expect activity for the AUD to remain range-bound in the immediate term but expect the pair to remain on-trend and still favour selling rallies.

AUDUSD Vol comment

Over the course of the coronavirus outbreak, AUDUSD vols (in line with macro FX Vols) spiked in March, with AUDUSD spot weakening significantly. Since then, we’ve seen these vols come off, and AUDUSD spot recover, albeit still not trading at pre-outbreak levels. In the short term, we expect most Western economies to remain in lockdown for the next 1-2 months, however, Asia’s biggest economy China has slowly started to lift its lockdown. However, we do expect to see a recovery or “bounce back” once markets re-open (though it may take longer to return back to “normal”). With Australia being a large exporter to China, we see Australia and the AUD being in the position to benefit from China and Macro recovery. To benefit from such a scenario, we suggest buying upside AUDUSD vol and selling downside against this to reduce the upfront premium.

Trade Idea

  • Buy upside AUDUSD vs selling downside
  • Buy 10m AUD notional 3-month call, 0.6600 strike for cost circa 54k USD
  • Sell 10m AUD notional 3-month put spread with 0.6100 and 0.5900 strikes to receive circa 36k
  • Overall cost circa 18k USD

Charts and Tables



Technical Analysis

Dollar Index


The index has consolidated in recent weeks, the market has remain supported at the 50% fib level. The indicators are starting to favour the downside, the MACD diff is neutral and lacks direction. Lack of appetite above 100 could trigger losses to test appetite at the 50% fib level. A break of this level would confirm the outlook of lower prices in the long run towards 96.604. The trend channel has held firm in recent weeks. On the upside, if the index holds above the 50% fib level and the reaffirmation of support keeps the long term trend on the upside. A break out of the channel could trigger gains to 102.928.

JP Morgan Global FX Volatility Index

The index has consolidated above key support at 8.69 but has failed at the 100 DMA. The stochastics are rising but are starting to converge. The RSI is overbought but the MACD diff lacks conviction. To regain upside momentum the index needs to break above 10.06 before targeting the 200 DMA at 10.99. On the downside, rejection of prices at the 100 DMA at 10.06 could trigger losses through key support at 8.69 to 7.


The MACD diff lacks conviction but the stochastics are rising and suggest improving sentiment on the upside. The RSI is in positive territory but lacks conviction. In order to regain upside momentum, prices need to take out resistance at 0.6451 and target 76.4. This would help confirm the ascending triangle. Conversely, prices have rejected resistance at 0.6390-0.6400 and this may trigger losses through the 50% fib level and the moving averages at 100 DMA and 200 DMA.



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