Play the G10 monetary divergence via long AUDJPY
FX markets remain predominantly focused on the JPY as USDJPY trades within a few ticks of the key 100.00 level. The JPY bounce in reaction to data showing Japanese investors were net sellers of foreign debt last week was ultimately not seen as a change to the widely held view that BoJ actions will force Japanese investors to buy foreign assets. Next week’s capital flows data will be watched closely and should be a better guide to the post-BoJ reaction of Japanese investors. What is already clear is that the pace of global monetary expansion will be accelerating for the remainder of 2013. We expect the Bank of Japan, Federal Reserve and the Bank of England to combine for a USD 1.3 trillion in balance sheet expansion for the next nine months which should provide on-going support to risk assets. Our preferred way of expressing that bullish view on risk is via an AUDJPY long. Despite softer employment data, we believe the domestic economic backdrop is improving for the AUD, adding to the already positive global environment. Consequently we recommend buying 1 x 3m 105.80 AUDJPY call/selling 2 x 3m 109.50AUDJPY call for a premium of 0.22%, with a maximum pay-out of 3.38%. The trade is profitable for all levels of AUDJPY spot between 105.80 and 113.15. For more details see “Long AUDJPY: Playing the Monetary Antipodes” in the latest FX Weekly publication.
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BNP Paribas