Rupee’s expected volatility against dollar hits 7-month low, at 4.50/4.80%

By Nimesh Vora

MUMBAI (Reuters) – The Indian rupee’s expected volatility against the dollar over the next one month hit its lowest level in almost seven months on Tuesday, tracking the currency’s recent narrow trading range and on expectations of the central bank’s continued support.

The rupee’s one-month at-the-money volatility was quoting at 4.50/4.80%, near its lowest level since late July last year.

The slide in the OTC (over-the-counter) volatility comes alongside a plunge in realized volatility – measured in terms of the last ten days’ closing price – to 2.2%, its lowest this year.

The rupee initially sold off after a much better-than-expected U.S. jobs report on Feb. 3. But, since then it has held in a narrow range of 82.35-to-82.90 with the Reserve Bank of India likely intervening to prevent the currency from weakening past 83.

“The one-month and near-term vols (volatility) have seen the highest impact,” said a derivatives trader at a private sector bank, declining to be named due to the bank’s internal policies.

The rupee’s expected near-term volatility is the lowest among major Asian currencies.

The Indonesian rupiah’s one-month volatility is near 7.5%, the offshore Chinese yuan’s at 6%, and at around 10% on the Thai baht and the Korean won.

Some market participants reckon the rupee’s implied volatility mostly should be sold.

“Rupee usually has been a short volatility trade as realised vols underperforms implied volatility,” Ashutosh Tikekar, head of global markets, India, at BNP Paribas said.

“Very rarely would you see a long volatility trade perform, especially at the shorter end.”

The trader mentioned earlier said a short vols trade at current levels given the hawkish repricing of the U.S. Federal Reserve’s rate path is “a bet that solely relies upon the RBI”.

 

(Reporting by Nimesh Vora; Editing by Savio D’Souza)

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