2018: Short AUD vs. USD

We said:

This year so far has been characterised by weak correlation between rates and FX as a consequence of ECB and BoJ QE. A re-rating of Fed hike expectations will temporarily disrupt the broader trend of global rebalancing away from the dollar. AUD/USD is a good example of this breakdown in rates-FX correlation; AUD has risen for two years despite the erosion of its 2y-yield advantage over the US, which has now turned into a discount of -50bp. On a previous occasion when the advantage turned negative, in 1998, the force of gravity eventually pulled AUD lower. The risk of a repeat has increased, and AUD/USD downside remains cheap. 

The implied volatility curve is relatively flat, and AUD/USD puts are relatively cheap. As the effects of the US government's fiscal stimulus become clear later in the year, and as the Powell Fed continues along its policy path, FX volatility should also rise. With Australia's yield advantage eroded, any change in dollar dynamics may have an outsized impact on AUD/USD compared to other G10 currencies. 

We buy an AUD/USD 20th Dec 0.75% put, and fund it by selling a 6-month put of the same strike for net cost of 58bp. 


AUD fell 5% vs USD more rapidly than we had anticipated. We closed the trade on 20 June 2018 for a profit of 27bps. 


18 May 2018
02 Feb 2005
01 Sep 2004
12 Aug 2004
05 May 2004
20 Jul 2000
01 Apr 1999
06 Jan 1999
01 Sep 1997
06 Jun 1995
10 Feb 1994
10 Mar 1993
06 Feb 1992
10 Dec 1991
03 Jan 1990



15 Apr 2016
16 Oct 2015
25 Nov 2013
20 Dec 2012
20 May 2004
03 Jul 2001


View our summary videos on fast trending topics. To listen to a recording of our Conference Calls, please get in touch with zdl@tslombard.com


Track Record

We have a 30 year track record of successful calls. Many of these calls combined economic, political and market analysis.



To request an interview with a member of our team, please get in touch zdl@tslombard.com .



Client Login

Don't have an account? CREATE YOUR ACCOUNT