The predicted volatility of the Indian rupee relative to the dollar over the coming month fell to its lowest level in nearly seven months on Tuesday, mirroring the currency’s recent tight trading range and on anticipations of continuing support from the central bank.
At 4.50/4.80%, the rupee’s one-month at-the-money volatility was close to its lowest point since late July of last year.
The decline in realised volatility, calculated using the closing price for the previous 10 days, also fell to 2.2%, the lowest level this year, coupled with the decline in OTC (over-the-counter) volatility.
Following a considerably better-than-anticipated U.S. jobs data on February 3, the rupee initially fell. However, it has remained within a constrained band of 82.35 to 82.90 ever since, with the Reserve Bank of India probably intervening to stop the rupee from depreciating past 83.
Due to internal restrictions at the firm, the futures trader at a private sector bank who wished to remain anonymous remarked, “The one-month and near-term vols (volatility) have seen the largest impact.”
Of the major Asian currencies, the rupee’s predicted near-term volatility is the lowest.
The one-month volatility of the Indonesian rupiah is close to 7.5%, that of the offshore Chinese yuan is close to 6%, and that of the Thai baht and Korean won is close to 10%.
Several market traders believe it would be best to sell the implied volatility of the rupee.
“Rupee usually has been a short volatility trade as realised vols underperforms implied volatility,” According to BNP Paribas’s Ashutosh Tikekar, head of global markets for India.
“Very rarely would you see a long volatility trade perform, especially at the shorter end.”
A short vols trade at the present levels, given the hawkish repricing of the U.S. Federal Reserve’s rate path, is “a bet that exclusively relies upon the RBI,” according to the trader previously cited.
