Flash: NZD/USD range to unravel on Fed taper decision - Westpac

FXstreet.com (Barcelona) - The most likely catalyst for a break outside the 0.7685-0.8135 range in NZD/USD is the Fed’s decision on tapering, notes Imre Speizer, FX Strategist at Westpac.

Key Quotes

"Our multi-month forecast is dependent on Fed tapering to start in 2013. Such action could be announced at any of the FOMC meetings in September, October or December. If tapering is announced in September, NZD/USD will probably fall and test 0.7685. Alternatively, if the Fed removes tapering expectations in September and October, then the NZD/USD will rise to the 0.8400-0.8500 area."

"This is not the time for large directional bets, since so much depends on Fed behaviour during the next few months. It is however a good time to explore the use of options, not least because they are cheap. First, option implied volatility (the main factor in determining option premium) is significantly lower than actual volatility. Second, the past decade range for 3mth option volatility, for example, has been 7.5%-31.5%, with an average of 13.5%. At 11.0% currently, it is historically cheap."