Japan posted a current account surplus of 1,878.5 JPY billion in April of 2016, down from 2,980.4 JPY billion in March. The figure was below market forecasts of 2,318.9 JPY billion, marking the 22nd straight month of surplus.
In April, exports were 5,603.0 JPY billion, compared to 6,331.6 JPY billion in a month earlier. Imports came in at 4,905.9 JPY billion, down from 5,404.4 JPY billion.
Trade in services posted a 4012.2 JPY billion deficit, reversing from a 242,9 JPY billion surplus in March. Primary income surplus was 1,780.5 JPY billion from 2,131.7 JPY billion in the preceding month.
Secondary income recorded a 197.9 JPY billion deficit, compared to a 321.5 JPY billion gap in March. In April 2015, current account surplus stood at 1,325.9 JPY billion.
Please be informed that the implied volatilities of ATM contracts of 1-3 months tenors are bouncing between 15-16%.
If IV is at higher levels, it means the market thinks the price has more potential for large movement in either direction. Low IV implies the market thinks the price will not move much.
JPY effects are dominating the kiwi as NZD/JPY trades above in near terms where it was before last RBNZ cut rates. Whereas in the long run we continue to view the risks to the NZD outlook as being to the downside, but do not see an imminent catalyst, particularly with local data still robust.
On the flip side, NZ trade balance recorded at NZD 292 million trade surplus in April of 2016, higher than NZD 184 million surplus a year earlier and above market expectations of NZD 60 million. Exports went up 4% YoY as fruits offset a fall in dairy sales and imports increased at a slower 1.5%.
Exporters’ Strategy: Should be bothered for long term open positions as the major bear trend seems intact, NZD to depreciation ahead futuristic RBNZ easing cycle. Well, capitalizing on stabilized IVs on a higher side (consistently well above 15% during 1-3M tenors) any debit bear spreads such debit put spreads or back spreads can be utilized for downside risks.
Importers’ Strategy: Importers should consider hedging at current levels. We are near range edges and the TWI remains strong and disconnected with other markets.
The NZD is at the top of the range on northwards (range: 75.296 – 75.922), with a risk positive rally that continues to confound. As such we favor holding off hedging for now, waiting for better levels.
Options preferred so as to maintain exposure to lower floating interest rates. You can trade the higher IV value by monitoring an IV chart for NZDJPY underlying market for a certain time period and determine the IV range. The peaks suggest the option is expensive to buy and the troughs suggest the option is inexpensive.
The material has been provided by InstaForex Company – www.instaforex.com