Bloomberg News

Unwind Options Wager Euro Will Fall Versus Aussie, Barclays Says

July 06, 2012

Investors who followed a recommendation to bet via options that the euro would slide against the Australian dollar should take profit on the position, strategists at Barclays Plc said in a client note.

The Aussie is at risk of depreciating next week if Chinese economic data signal the pace of growth waned in June, according to a team that included Singapore-based Olivier Desbarres. The outlook for no further policy action by the European Central Bank after this week’s interest-rate cut and the outcome of a meeting of European finance ministers July 9 may provide short- term support for the 17-nation currency, the strategists wrote.

“We remain constructive on the Australian dollar and bearish the euro medium term, but think that the risk-reward of being short euro-Australia is not particularly appealing at this juncture,” the strategists wrote. A short position is a bet an asset will decline.

The euro was little changed today versus the Australian dollar at A$1.2043, after sliding from a 2012 high of A$1.3031 on May 18. The common currency has slumped 7.8 percent over the past year against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes.

The Barclays strategists recommended on June 29 that investors capitalize on probable depreciation in the euro versus the Australian dollar by purchasing a so-called put spread. The strategy, which involves a purchase and a sale of two euro- Australian-dollar put options with different strike prices, was designed to profit if the euro weakened. The trade was closed today with a net gain of 90 basis points, or 0.90 percentage point, the strategist wrote in the note.

The ECB reduced its benchmark rate yesterday to a record low 0.75 percent and took its deposit rate to zero, as demand in the economy was weak. Europe’s debt crisis has curbed growth across the continent and damped the outlook for the world economy.

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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