• AUD/NZD took centre stage Wednesday - a sharp drop from 1.2279 to 1.2097 raising questions about the year-long bull trend

• The sell-off was macro driven - hawkish RBNZ and cooler Australian CPI combining to fuel carry trade unwind fears

• Spot found demand at 1.2066 Thursday but the damage is done - a 15% bull run in a year is now firmly under the microscope

• Option desks report heavy directional downside plays including exotic structures like one-touches

• These options would increase in value if AUD/NZD extends losses and if volatility increases

• Implied volatility finally meets demand after trading its lowest levels since January
AUDNZD=D3


AUD/NZD FXO implied volatility


(Richard Pace is a Reuters market analyst. The views expressed are his own)