Currency traders shun offshore bets after yuan devaluation

MUMBAI: Traders who bet and benefit from trading currency in offshore markets are shying away from such activity this time.

The turmoil in China has caught them unawares, leaving them grappling for clues in a volatile market environment. “China poured cold water after capping forwards trade, which ends speculation on further devaluation,” said Veracity Group CEO Pramit Brahmbhatt. “This has prompted punters to stay off speculative bets, especially when Chinese markets stay closed for a day or two. Whenever any emerging market currency faces a rout, global institutional players try to corner abasket of EM currencies gaining from such volatility,” he said.

The rupee had hit a record low at 68.75 to the dollar in August 2013, badly bruised in the currency rout, especially among emerging market currencies.

But this time, currency volatility began on August 11, when China devalued yuan by 3.5 per cent collectively. The rupee has lost about 3.5 per cent since them. Speculations were rife that the country, struggling for export competitiveness, would make its currency even weaker.

“In the past few weeks, People’s Bank of China has been driving punters the most, not the Fed or ECB,” said Anindya Banerjee, currency analyst, Kotak Securities. “Suddenly, the dealing room mood has changed with more focus on yuan for rupee-dollar trades. “Ahead of market holidays in China, they even stopped taking fresh bets in offshore forwards market,” he said.

One-month contract is just at 2 paisa premium against 10 a few weeks ago. Three-month contract is at five paisa; it was 20 paisa a few weeks ago.

“The Chinese economy, which has been facing a structural slowdown amid lack of domestic demand, came under further pressure amid the consistent decline in export earnings,” said Abhishek Goenka, founder & CEO, IFA Global. “The Chinese authorities have been highly proactive on both fiscal and monetary front to fuel growth.”

A few days ago, PBOC put an end to speculation by capping trading in yuan forwards market. Earlier, it had cut the benchmark interest rate several times and lowered margin requirement to increase investment activity.