Aussie Volatility Near 4-Month High Before RBA as Shares Tumble

The expected fluctuation of the Australian dollar rose toward the highest in more than four months as traders weighed prospects for the Reserve Bank to scrap its easing bias while emerging markets drop.

The Aussie was little changed after posting the biggest weekly gain in four weeks. Swap levels show there’s 97 percent odds the Reserve Bank of Australia will keep rates on hold at 2.5 percent today. The RBA will release its quarterly statement on policy on Feb. 7. New Zealand’s dollar fell to the lowest since September after Finance Minister Bill English said the government is “not comfortable” with the currency’s strength.

One-month implied volatility for the Aussie versus the greenback rose 24 basis points to 10.72 percent from yesterday, when it touched 10.80 percent, the most since Sept. 30. A basis point is 0.01 percentage point.

The Aussie declined 0.1 percent to 87.44 U.S. cents as of 12:29 p.m. in Sydney. The currency rose 0.1 percent to 88.45 yen from yesterday, when it dropped 1.1 percent. Australia’s dollar added 0.2 percent to NZ$1.0842, after touching NZ$1.0877 yesterday, the highest level since Jan. 3.

The kiwi fell 0.3 percent to 80.65 U.S. cents, after earlier touching the weakest since Sept. 11 at 80.52. The currency bought 81.57 yen from 81.63 yesterday, after reaching 81.47, the lowest since Nov. 12.

The BOJ’s easing has had the intended impact so far, Governor Haruhiko Kuroda told Japanese parliament today. Annual inflation will accelerate toward the central bank’s goal of 2 percent from the end of the current fiscal year in March 2015 to the following 12-month period, Kuroda said.

The 14-day relative strength index of dollar-yen was at 33 yesterday, the most oversold since June. The same gauge for euro-yen dropped to 27 yesterday, the lowest since June 2012. A reading below 30 is seen by some traders as a sign that an asset price has fallen too far, too rapidly and is poised to reverse.

(Source: Bloomberg)