Given any price time series, the volatility changes depending on how often you take an observation. For instance, suppose, for AUDNZD, you use the hourly data to compute volatility (V_H) and the daily data to compute volatility (V_D). You will see that V_H is bigger than V_D statistically. This is a property of any mean-reverting asset/price process, which can be proved mathematically.
So, if you can replicate V_H by buying and selling AUDNZD, and replicate V_D by buying and selling AUDNZD. You are expected to make a profit proportional to (V_H – V_D) > 0.
For a pair (AUDNZD, GBPJPY), the concept is the same. We apply it to the spread adjusted by beta, such as, Z = AUDNZD – GBPJPY. So, we are buying and sell AUDNZD and GBPJPY, according to the volatility difference signal.