(Bloomberg) — Hedge funds are ramping up bullish bets on the Australian dollar in the options markets before next week’s central bank decision.
The volume of call options that wager on gains in the Aussie versus its US peer climbed to six times that of puts on Wednesday, according to Chicago Mercantile Exchange data. This comes as three of the nation’s “Big Four” lenders expect the Reserve Bank of Australia to raise its cash rate by a quarter percentage point on March 17.
“We are seeing renewed demand from macro hedge funds for upside Australian dollar exposure through call options, primarily against the US dollar but also, increasingly versus the New Zealand dollar,” said Anand Goyal, head of foreign-exchange sales for financial institutions in Asia-Pacific at Citigroup in Singapore.
The Aussie will be boosted by relatively high Australian front-end rates that make it a good target for so-called carry trades, and also by the growing conviction that the broad US dollar rally is almost over, he said.
The Aussie has advanced about 7% against the greenback this year and more than 4% versus the kiwi. The currency climbed to as high as 71.87 US cents on Wednesday, the strongest level since June 2022, before trading at 71.48 cents on Thursday.
The Aussie’s advance in recent months has driven local pension funds to boost their currency hedges to cushion their global stock portfolios.
Trades involving call options of A$150 million ($107 million) or larger were also six times that of their put counterparts Wednesday, according to data from the Depository Trust and Clearing Corp.
Expectations of another RBA rate hike intensified this week after Deputy Governor Andrew Hauser said on March 10 that inflation remains too high and further price pressures stemming from the war in Iran wouldn’t be helpful.
Bank of America Corp. is also seeing increased demand for Australian dollar call options against both the US and New Zealand currencies.
“AUD/NZD is just as popular, but remains a more niche expression given thinner liquidity and less capacity to scale,” said Ivan Stamenovic, head of Asia-Pacific Group-of-10 currency trading at Bank of America in Hong Kong.
European investors have also been putting on bullish Aussie bets.
“We have seen an increase in Aussie topside, particularly in AUD/USD, with digitals, call spreads and even outright vanilla calls being in demand by the fast-money community,” said Mukund Daga, global head of foreign-exchange options at Barclays Plc in London. “Activity has generally been focused on shorter-dated tenors, reflecting positioning around near-term event risk.”
Digital calls offer a fixed payout if a specified level is reached, effectively functioning as an all-or-nothing wager. Call spreads cap potential profits but reduce upfront premiums compared with standard, referred to as vanilla calls.
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