By: Andrew Keene
On May 10, the Australian dollar dropped to its lowest levels in 11 months after a decline of over -2.5% during the week. Despite positive news regarding labor market, the currency fell -1% on Thursday to USD $1.0047.
AUD saw a sharp drop last week after the news of lowering demand in the country’s retail sector. The Australian Bureau of Statistics reported a decline of -0.4%, much lower than analyst expectations of 0.1%. Paired with a substantial drop in China’s PMI for March and relatively strong exchange rates for the East-giant’s trades with Australia - gave the country an unattractive view of overall net exports.
In an effort to cushion the fall and level 30-year-highs of the currency, Reserve Bank of Australia (RBA) decided to cut rates to 2.75% from the 3% rate set last December. The week started off well with 5.2% increase in home loans for March, compared to the 4% estimates. The country also beat estimates for employment data, bringing in 50,100 new jobs, well over the conservative estimates of 11,000. The news however, had little effect on the falling currency, which is traded heavily on the actions of the RBA.
Relative to USD, Aussie dollar has taken huge hits with negative data and outlooks. US released strong employment numbers along with a Federal Budget surplus that was higher than expected. The Australian Central Bank also did not help the figures by forecasting a slow recovery and pessimistic growth in the economy.
Subsequently, lower demand for commodities in Australia has left the mining industry to scale back their investments and bring down their operating costs. Currently, mining sector represents 10% of Australia’s overall GDP. Paired with the slowdown in oil demands, Australia is in trouble with multiple sectors in its economy. AUD currently trades at 0.9978 with expectations to decline even further.
Buying the FXA June 99 - 95 Put Spread for $0.75
Risk: $75 per 1 lot
Reward: $325 per 1 lot
Breakeven: $98.25
Greeks of this Trade:
Delta: Short
Gamma: Long
Vega: Long
Theta: Short