The Indian rupee showed a slight increase against the U.S. dollar on Tuesday, thanks to the recovery of the yuan and other Asian currencies. The Chinese central bank’s indications of being uneasy with the pace of the decline of the yuan led to the recovery of the offshore Chinese yuan value to the U.S. dollar. Analysts believe that the lower-than-expected USD/CNY fix indicated a signal from the Chinese central bank that the decline was too rapid. This move led to the pushing down of the U.S. dollar index and the raising of other Asian currencies. The rupee’s 30-day realized volatility stayed under 3%, while its one-month implied volatility was at 3/3.2.
Option sellers are benefiting from low volatility. The Kotak Securities head of research for FX and interest rates, Anindya Banerjee, commented that the implied volatility in USD/INR options was close to its 15-18 year lows across different tenors. Option sellers can concentrate on strategies such as the short straddle, short strangle, he advised. A short straddle is the selling of a put and call option with the same strike price and expiration date, while a strangle involves the selling of out-of-the-money call and put options.
The derivatives trader, meanwhile, attested that selling options, notwithstanding the current low implied volatility, makes sense till spot is in the now new 81.80-82.20 range. The analyst highlighted that investors are anticipating this week’s U.S. data releases to determine the Federal Reserve’s (Fed) future rate hikes. According to futures, investors remained skeptical that the Fed’s projections of two more rate hikes for this year would be followed through.
The news may have little effect on the Indian economy as it does not involve major rupee fluctuations. However, option sellers who bought options contracts at low prices early on might make profits, given that the implied volatility in options is low. The Indian central bank, Reserve Bank of India (RBI), may also be keeping a close watch on US data releases and the performance of other Asian currencies, including the yuan, amid concerns over rising inflation. Although the rupee’s value is relatively stable at the moment, it could be affected if the RBI decides to make any changes to interest rates or other monetary policies.
