USDINR Ideas - Volatility is dead - 5Feb2021
Ritesh Victor
Co-Founder Myforexeye Fintech Pvt Ltd; Ex Chief Treasury Officer-Trident Ltd; Ex-Mecklai; Ex-Evalueserve; CMT L3 candidate; NISM-RIA
Despite the volatility in various financial markets across the globe, our beloved Rupee remains rock solid – undeterred and extremely stubborn. No points for guessing who is driving rupee’s such uncharacteristic behavior.
We checked out USDINR’s intra-day amplitude (high low range) on a daily basis since 1 January 2021 till date. Following are our observations for a total of 25 trading days:
Maximum intra-day range is 32 paise (0.44%) – on the day of Union Budget
Minimum intra-day range is a tiny 6.75 paise (0.09%)
Average intra-day range is just 15.5 paise (0.21%)
There were 20 days in which intra-day range was equal to or less than 20 paise (0.27%)
There were 5 days in which intra-day range was equal to or less than 10 paise (0.14%)
Quite puzzling for an asset which is usually reasonably volatile.
This stability is witnessed during a period when the dollar index (US dollar’s value against 6 of its major trading partners) has surged 2.68%. This kind of a rise in dollar index is generally accompanied by a weakening rupee – that has surprisingly not happened on this occasion. Observe the chart below: Rupee on the left Y-axis (yellow colour) and dollar index on the right Y-axis (purple color). Check how the yellow candles have held a particular range (highlighted by yellow horizontal lines) while the purple candles have soared.
Have noticed multiple times in the past that rupee reacts to such external volatility with a time lag. Could that happen again? Possibly yes!!
Dollar importers should hedge using forwards and some vanilla options while dollar exporters should predominantly use vanilla options and some forwards (preferably long term to benefit from high forward premiums).
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