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NZDUSD – Options Implied Volatility Elevated Ahead of RBNZ

NZDUSD – Options Implied Volatility Elevated Ahead of RBNZ

What’s inside:

  • One-day implied volatility rises to over 14% ahead of RBNZ this evening
  • Price levels and projected range low/high levels which are in alignment
  • Knee-jerk reaction may be faded, downside may be curtailed with recent slide into consideration

Looking for a longer-term view on NZDUSD? Check out our Q3 Forecast.

In the following table, we listed levels of implied volatility (IV) for major USD-pairs looking out over the next one-day and one-week time-frames. Using levels of IV we calculated the projected range-low & high prices from the current spot price within one-standard deviation for specified periods. (Theoretically speaking, there is a 68% probability that price will remain within the lower and upper-bounds.)

NZDUSD one-day implied volatility rises to over 14% ahead of today’s RBNZ, levels to consider...

This evening at 21:00 GMT the RBNZ will release its decision on interest rates and policy statement, followed by a press conference with central bank’s governor Wheeler to begin at 22:00. The central bank is expected to stand pat at 1.75%, so no surprise is likely to stem from their decision not to make a move on rates. Where volatility is likely to spawn from is the policy statement and press conference. One-day implied volatility is currently at 14.25%, which is elevated but nothing extreme. At that level, a one-standard deviation range from spot price can be derived with a low at 7268 and high at 7378. The one-week projected range is between 7218 and 7428.

Since topping last month at 7558, kiwi has been aggressively declining, perhaps in anticipation of the RBNZ having a more cautious tone. With that in mind, we could already see a dovish stance priced in and further downside risk curtailed. The one-standard deviation low arrives at 7268, which is near a key reversal day low back on 7/18. This could be a spot on an initial knee-jerk reaction lower we see buyers step in.

Moving in line with the trend, a pop higher from the support zone NZDUSD is currently trading around (~7320/45) may lend to a bounce for sellers to step in. The one-day projected high (1 StDev) arrives at 7378, which is in approximate alignment with the recently broken channel line off the May low.

In either event, barring an unforeseen move in rates (unlikely) or strong language one way or the other, a move in either direction may fade. Given the 200+ pip drop off the highs into today’s meeting lends to the notion of having most of today's event may be priced in and that a drop into lower levels could result in a short-term wash-out.

Keep in mind: The fact the announcement comes at the close of New York trading (roll-over) and the press conference in the very early hours of Asia trading means liquidity will be low and exaggerated moves can occur.

For other currency volatility-related articles please visit the Binaries page.


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---Written by Paul Robinson, Market Analyst

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.