The Reserve Bank of Australia makes a policy announcement Tuesday, and although recent rhetoric from the RBA's deputy governor left markets expecting a cut in the 0.25% policy rate, it's not widely expected until November, according to a poll of economists nL4N2GR0PQ, so little effect is expected on AUD/USD Tuesday.
FX option markets reinforce that view, with the premium for overnight expiry options, which now capture the RBA and any AUD/USD volatility, remaining relatively tame.
Implied volatility, which measures actual volatility risk, is just above last week's average of 14.0, trading 16.5 in early Asia, but back at 15.0 since.
In premium terms, that's a break-even for a simple vanilla straddle of 45, from 40 pips in either direction, before Tuesday's 10 a.m.
New York expiry.
Even if the RBA does cut Tuesday, the fact that it's mostly priced in for November anyway should also limit AUD/USD losses.
Upside may be more at risk if the RBA's outlook isn't as dovish as the deputy governor's.
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Overnight expiry AUD/USD implied vol Click here