AUD/USD risk reversals: Bearish bias strengthens ahead of the Aussie CPI release

• AUD/USD risk reversals hit the lowest since March 28 - indicates a bearish bias.
• Eyes Australia first-quarter CPI release. 

The AUD/USD one-month 25 delta risk reversals fell to -0.875 (AUD 0.875 puts) - the lowest level since March 28, indicating increased demand for the AUD puts (sell AUD). 

The risk reversals gauge stood at -0.55 last week. The decline or the increase in the implied volatility premium for the AUD puts adds credence to the recent decline in the AUD/USD from 0.7813 to 0.7597 and signals investors are preparing for a deeper sell-off. 

Analysts at Nomura are expecting a 0.6% quarter-on-quarter rise in Australia’s headline CPI inflation in Q1, which would see year-end inflation rise to 2.1% year-on-year from 1.9%. A better-than-expected CPI could help the Aussie dollar regain poise. That said, big gains are unlikely as the focus seems to have shifted to rising Treasury yields. 

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