AUD/USD - Downside bias strengthens, risk reversals show

• AUD/USD risk reversals hit 7.5 week low.
• AUD risks falling below 0.80.

AUD/USD one-month 25-delta risk reversals fell to a 7.5 week low in Asia, indicating increased demand for AUD puts.

As of writing, the risk reversals are being paid at 0.55 AUD puts compared to 0.45 AUD puts yesterday and well below from the recent (Jan. 25) high of 0.18 AUD puts. The drop from -0.18 to -0.55 clearly indicates the investors have been seeking downside protection against a possible pullback in the AUD/USD pair.

Also, the dealers are buying vols as suggested by the rise in the one-month at the money options volatility gauge to 8.25 from yesterday's print of 7.90. Further, the AU-US 10-year bond yield spread is nearing parity. So, the AUD/USD pair might drop below 0.80 today.

That said, the tide could turn in favor of the AUD bulls if the US wage growth numbers disappoint expectations.  

AUD/USD Technical Levels

As of writing, the spot is trading at 0.8013. A break below 0.80 would expose 0.7987 (23.6% Fib R of Dec-Jan rally). A close below 0.7987 would indicate a near-term top is in place at 0.8136 and could yield 0.7893 (38.2% Fib R of Dec-Jan rally). On the higher side, breach of resistance at 0.8044 (session high) would open up upside towards 0.8083 (Jan. 24 high) and 0.8136 (Jan. 26 high).