By Nimesh Vora
MUMBAI, Feb 21 (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".
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(Reporting by Nimesh Vora; Editing by Savio D'Souza)
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