(Bloomberg) -- Speculators looking to profit from the hawkish shift among global central banks have a fresh target: the Australian dollar.
With the pound, euro and Canadian loonie all surging around 2 percent this week after officials signaled a bias toward tightening monetary policy, hedge funds are piling into Aussie options on expectations the Reserve Bank of Australia will follow suit. Implied volatility contracts with a tenor of one week spiked to 8.8750 Friday, the highest since May 5. Speculators added more than $1.7 billion of options on the Australian currency at a strike price of 77 U.S. cents over the past two days, DTCC data show.
Volatility is picking up around central bank meetings, with the RBA and Sweden's Riksbank being the first out of the gate next week following a global shift in rhetoric. Gauges of price swings from one week to one month in euro-krona have jumped to the highest levels since April as investors bet the Riksbank, which like the RBA meets July 4, will follow other major global monetary authorities who have indicated the era of easy money may be coming to an end.
“We see an uptick in short dated volatility,” said Jason Leinwand, founder of consultancy FirstLine FX and former head of currency trading at MetLife Inc. “Short term high-frequency traders and prop traders like it, and can finally make some money.”
The Aussie rose as much as 0.6 percent Thursday against the dollar, reaching the strongest in three months, while the krona jumped as much as 0.6 percent versus the euro.
While the RBA is expected to keep rates steady, the “constructive tone of late will likely see markets hopeful of a similarly more upbeat tone,” Jennifer Hau, a foreign-exchange strategist at Credit Agricole SA in London, wrote in a note to clients Thursday.
Australia's central bank could increase interest rates eight times in the next two years, former board member John Edwards said Tuesday. Rates have been on hold at 1.5 percent since last August.
The Riksbank is expected to hold its key interest rate at a record-low minus 0.50 percent on Tuesday, while some predict that it will remove the odds for a rate cut from its rate path, according to an investor survey conducted by SEB AB.
--With assistance from Love Liman and Michael Heath
To contact the reporters on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net, Robert Fullem in New York at rfullem5@bloomberg.net.
To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Dave Liedtka
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