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Macro and Vol Commentary

Monetary policy discrepancy has caused AUDJPY to reach levels not seen since 2014. Do we expect this to continue?

Economic data

  • According to the RBA, the Australian economy has rebounded strongly from COVID and grew at 5% in 2021. This growth rate is expected to continue in H1 2022 before moderating to 4.5% in December 2022 and 2.5% in June 2023. %
  • Household spending remains robust, with February data showing Y/Y growth of 5.5% and M/M growth of 1.8%.
    • Consumer sentiment is suffering slightly from the inflationary environment. ANZ Roy Morgan weekly consumer confidence stands at 91.1 as of March 27th, a decline from 100.1 at the beginning of the month.
    • Westpac consumer confidence has also fallen and stood at 96.6 as of March 8th, down 4.2% M/M. We expect this to fall further for April as the inflationary pressures and expectations continue.
  • Private sector credit has surged since the start of 2021 and now stands at 7.9% Y/Y and 0.6% M/M; this trend outlines the need for consumers to borrow money; however, with rates increasing, the interest payments will also tighten the screw on the consumer.
    • Retail sales grew at 1.8% Y/Y in February, up from a revised 1.6% in January.
    • Since the economy reopened, spending on clothing, footwear, department stores and restaurants has increased, but food sales have declined significantly.
    • While savings over COVID-19 will present a moderate buffer for consumers, inflation is rising across the globe at a steady clip, and this will put pressure on the consumer, even with solid earnings and employment.
  • Business confidence has been volatile in recent years due to lockdowns. The near-term trend suggests that business conditions and confidence are improving with the data at 9 and 13, respectively, both improving from 3.
  • The manufacturing PMI replicated this sentiment, with 5 out of 6 manufacturing sectors reporting strong conditions. The overall reading was 57.7 in March, increasing from 57.3 in February. The manufacturing industry is expected to continue to grow in the near term, but the higher input costs will be a headwind to the sector in the coming months; however, inflation is comparatively low in Australia.
    • Composite and services PMIs are also rising and stood at 57.1 and 57.9, respectively, in March.
  • The employment market continued to improve, with unemployment declining to 4% and job vacancies down to 6.9% in Q4, 18.8%.
    • Employment change in February was 77.4k, and the participation rate increased to 66.4%. We also saw a significant increase in job advertisements.
  • Inflation expectations continue to climb, and this is impacting consumer sentiment. We do not expect greater employment to have a material impact on consumer confidence as prices rise sharply.
    • Australia is relatively well protected from some costs as it has a wealth of natural resources and exports these materials. This will benefit the trade balance and balance of payments.
    • We expect inflation to rise above the 4.7% recorded in January.
    • Higher input prices are being passed on to consumers, contributing to inflation rising faster than expected.
  • The housing market is steady; building approvals increased 43.5% Y/Y, and private sector houses increased 16.5% M/M.
    • The housing price index increased 23.7% Y/Y for Q4, up 4.7% Q/Q.
    • Home loan value M/M declined 3.7%, significantly lower than the January figure of 2.5%.


  • In January, the trade balance improved to A$12,891m; this was a large improvement on the December number of A$8,824m.
  • Australia signed a new trade deal with India worth $12.6bn, and the deal will allow Australia to reduce its dependence on China.
  • Trade talks with China have stalled; these talks must improve Australia’s economy as China accounts for 31% of its trade with the world.
  • Coal exports to China still stand at 0, but iron ore exports remain elevated at 59.3m tonnes as of January 2022. China’s economy is softening, which could present a downside to the Australian economy.
  • Demand for iron ore and materials from China will likely improve as China’s authorities have eased policy measures, traditionally a boon for steel and materials as infrastructure spending and construction improve. However, the property market is expected to remain weaker than in previous years.

Monetary Policy

  • The BOJ has committed to keeping increasing asset purchases in the coming months as they attempt to cap borrowing costs. This is a stark contrast to most central banks, raising rates and cutting asset purchases as inflation increases.
  • The divergence in borrowing costs and bond yields has caused the JPY to weaken significantly.
  • The RBA is under pressure to bring forward their first-rate hike; however, they didn’t increase rates on Tuesday (April 5th), and we expect them to now raise rates in June, further aiding AUD gains.
  • Rate hike probability is at 83.1% in July, 105.4% in August, 109% in September, and above 100% for the remaining months except for December. The implied rate is 1.787% in December 2022.
    • The market is expected to reach 3.3% in 2023.
  • The divergence of monetary policy will aid AUDJPY, which could set the scene for higher prices. However, the divergence in other currency pairs will be greater initially. Still, we expect Australian rates to reach higher than other countries such as the U.S. and the U.K. but lower than E.M.

Australia’s economy continues to recover from the pandemic, PMIs are expansionary, unemployment is falling, and growth remains robust. However, early signs show that this momentum will continue to moderate; consumer sentiment is falling as inflation rises. Wages are rising, but CPI will be above-trend and wage growth for the foreseeable. The market is pricing in rate hikes at every meeting after June, with 0.250%. Inflationary pressures elsewhere have increased fast, and this could bring forward rate hikes in Australia. Australia’s incumbent political party lost their power in South Australia, which could indicate a change of government in May. We expect divergence of monetary policy between Australia and Japan to continue, which will aid the carry trade and AUDJPY strength. We continue to favour holding AUDJPY due to strong commodities prices, domestic conditions, tightening monetary policy and a strong current account surplus. The election in May will provide some volatility and noise to the market, but we expect the AUD to remain strong.

Volatility Commentary

AUDJPY 1-month realised volatility has more than doubled since the start of the conflict in Ukraine, prompted by its risk-on status and commodity currency. Higher commodity prices have in fact helped AUD strengthening versus JPY over the last month. Another factor benefitting AUD vs JPY is RBA dropping the forward guidance on the cash rate, as opposed to the BoJ extending their dovish stance. We expect this trend to last in the near term in a volatile and inflationary environment, and favour buying a structure benefitting from a stronger AUD vs JPY over the next month.

AUDJPY 1-month Realised and Implied Volatility 

AUDJPY Trade Idea

Trade idea in 1 months:

  • Buy KI AUDJPY Call, Strike 93,KI barrier 94 in AUD 1mio, Pay 9k USD circa.
  • Sell AUDJPY Put, Strike 92 in AUD 2mio, Rec 17.5k USD circa.
  • Total structure net Rec USD 8.5k circa

Positioning Charts

USDBRL NDO Positioning Data 21/03/2022 - 28/03/2022

The week to March 4th we saw less volume in the USDBRL options market. Spot has continued to drift lower and this is still replicated in the options market with the cluster of put options down to 4.50. There remains little upside cover, there is one call option with a large notional value has a strike of 5. The spot market has fallen towards 4.60 and any correction to the upside could see more short covering and call options executed. We expect further downside momentum and the option market seems well covered. 

USDBRL NDO Positioning Data 28/03/2022 - 04/04/2022

USDCNY Vanilla Positioning Data 21/03/2022 - 28/03/2022

Once again there is little relationship or pattern in the options market for USDCNY. Options which are due to expire before the end of May trade a wide range of 6.30-6.50. After May, there is little pattern or direction. There are few put options traded after May and the calls are predominately above 6.40 which suggests the market expects some weakness after May. 

USDCNY Vanilla Positioning Data 28/03/2022 - 04/04/2022

AUDJPY Vanilla Positioning Data 04/02/2022 - 04/03/2022

The sharp contrast in options executed between February and March was due to a strong rally in the AUD and shift in monetary policy. Spot stands at 92 as of April 4th having traded at 84 in the beginning of March. There is a strip of call options due to expire before July with strikes all the way up to 105. The range for put options is wide, and goes back down to 80. Some of these options have large notional values indicating conviction and this could be a hedge against the rise in spot. We expect AUDJPY to remain on trend and strong in the near term. 

AUDJPY Vanilla Positioning Data 04/03/2022 - 04/04/2022

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases

Technical Analysis

JP Morgan Global FX Volatility 


The index began to gain ground in recent sessions but struggled to break above resistance at 100 MA at 9.11. The index has also found robust support at 200 MA at 8.92, keeping the descending triangle formation intact. The stochastics are rising, with %K/%D now in the overbought and showing no signs of convergence as of yet. The MACD diff, however, is positive and converging, suggesting a change of momentum in the near term. The reaffirmation of resistance at 100 MA could trigger a break below 200 MA back towards the 50% fib level at 8.63. Appetite for prices below this level would signal strong selling pressures. However, if near term resistance does not hold, we could see the index gain back above 200 MA before trend resistance at 9.42. The moving averages have created a tight trading range for the index, and to confirm the waning buying pressures, the index needs to break below the longer-term support at 200 MA.

Dollar Index 


The index has rallied in the first week of April, breaking above resistance 99.29, keeping momentum on the front foot. In recent days, however, the index has found resistance at 99.76, with the latest candle's wick piercing this level. The stochastics have converged on the downside and are now falling out of the overbought, a strong sell signal. Likewise, the MACD diff is positive and about to converge on the downside. To confirm the outlook for a trend change, the index needs to break below the 99.29 support before 50 MA at 98.79. On the upside, a break of resistance at 99.76 before 100 would need to take place, but the indicators and robust resistance at the level are likely to trigger a change of momentum in the near term.



The pair has been gaining in recent weeks, but resistance at 94.15 held firm once again this month, creating a double top formation. The resistance at this level prompted a decline in recent sessions, but 50 MA capped the downside momentum at 92.36. The pair has now found itself trading at 92.53. The indicators point to a convergence on the upside, with %K/%D now oversold and MACD diff being negative but seeing slowing downside momentum. To confirm the change of trend, the pair needs to break above the trend line at 93.35 before targeting 94.15 once again. Alternatively, the resistance at this level could trigger further downside momentum to 92.00 before 100 MA at 90.90. Smaller candle bodies today are pointing out the uncertainty about downside momentum, so to confirm the indicators, the pair needs to break below the 50 MA in the near term.



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