- Two of our recommended trades expired with a total profit of 2.21%.
- The 3M-6M EUR/NOK 7.75 call calendar spread opened on 9 May matured with a 0.7% profit.
- The 1M AUD/NZD 1.2550/1.2330 risk reversal opened on 9 October matured with a 1.51% profit.
We recommended entering a 3M-6M EUR/NOK 7.75 call calendar spread to position for a sustained structural NOK appreciation trend, while hedging near-term policy risks. We argued that strong Norwegian domestic economy would continue to support NOK going forward.
Since May, EUR/NOK has traded markedly lower as pressure on EUR intensified while NOK gained support as a safe-haven currency. EUR/NOK currently trades around 7.30 – in line with our three and six-month forecasts of 7.30 and 7.25, respectively, and both the bought 3M 7.75 call and the sold 6M 7.75 call option were never exercised. The strategy matured with a profit of 0.7%, which corresponds to the up-front premium of 0.7% of EUR notional we received when we entered the strategy.
Further upside potential in AUD/NZD
Since we recommended entering the 1M 1.2350/1.2550 risk reversal, AUD/NZD has risen more than 2%, as a series of better-than-expected data out of Australia combined with relatively poor data out of New Zealand has supported AUD. Moreover, the market has been pricing out more than one full 25bp cut from the reserve bank of Australia (RBA), after the central bank unexpectedly decided to keep rates unchanged in November.
While we continue to see upside potential in AUD/NZD from an ongoing improvement in Australian economic data relative to New Zealand, we also think that the recent rally in AUD/NZD currently looks overdone. We thus prefer to stay sidelined and will consider opening a new long AUD/NZD position, either by entering a new risk reversal or via a long spot position, in case of a correction lower in the spot.
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