Dollar Volatility Keeps Rupee Activity in the Limelight

Emerging market currencies have been the talk of the year after certain crosses have been on the back burner against the world’s reserve currency, the US dollar. The Indian rupee has been one of the main victims of a currency crash that saw the BRICS’ nations pair cross new lows, the rupee fell over 25% to a record low of 69.18 against the dollar.

The major moves have been welcomed by brokers offering NDFs as volumes have picked up. A spokesperson for Ong First Tradition, a Singapore-based multi-asset broker, spoke about the firm’s recent surge in trading volumes in a comment to Forex Magnates, stating: “We have seen a large spike in NDF volumes due to the recent issues in India."

NDFs are offered by banks and brokers as an alternative instrument for firms trading in currencies that have capital controls. The Korean won is one of the most liquid (NDF) pairs, however due to the recent rupee fiasco traders have switched their interest in an attempt to find new opportunities.

Ed Anderson, Head of Global FX Sales at Price Markets said in a comment to Forex Magnates: “Indian rupee is the most frequently traded NDF although we are seeing good interest in all the Asian NDFs. Generally we get good Liquidity across all tenors however 1, 3 & 6 Month deals are where the bulk of trading is occurring.”

Corporates looking to manage their exposure are typical users of NDFs as they aim to lock in rates, a major currency move can be the difference between a decent profit and an unwanted loss for firms e.g. an Indian importer of goods from overseas transacting in dollars would be paying 20 to 25% above normal prices.

"Due to the huge increase in volatility many corporate hedgers and proprietary traders have had to participate in the market," added the spokesperson from Ong First Tradition.

Retail FX brokers have recently included NDFs as CFDs as a marketing tool to attract new traders. India’s central bank has taken measures to calm the situation and the rupee has recovered to trade in a range of 62 to 63.

NDFs have been included in the list of cleared instruments traded on SEFs, daily volumes have been modest averaging between $6 and $8 billion across NDFs and FX Options. ICAP has been leading the pact with around 36% of FX volumes.