📝 FX Volatility Seen Underpriced: Westpac

DXY derived little“safe-haven” style upside for a good part of the latest lift in various market turbulence metrics such as the VIX and the US high yield credit index.

Volatility markets in general are decoupling from FX markets more broadly too. Slide four compares an index of 3- month implied vol for FX markets with implied volatility for key commodities (gold and oil), equities (VIX) and interest rates (the MOVE index of interest rate swap volatility). At any given time there are wide divergences, but the recent jump in bond, equity and commodity implied volatility in recent weeks, while FX volatility has remained subdued is especially eye-catching.

- Westpac