AUD/USD risk reversals retrace downside bias

• Risk reversals have given back a big chunk of downside Vol premium.
• Yield differential favors the USD.

The AUD/USD one-month 25 delta risk reversals (AUD1MRR) are being paid at 0.7 AUD puts vs. 1.2 AUD puts on Feb. 9.

The decline in the volatility premium of AUD puts (sell AUD or bearish AUD bets) indicates investors are expecting any further spot setbacks to be limited.

Meanwhile, the yield differential, i.e. the spread between the 10-year Aussie bond yield and its US counterpart stands at -10 basis points; the lowest since 1998. The negative yield spread favors the US dollar.