By Nimesh Vora
MUMBAI (Reuters) – The Indian rupee has seen an increase in volatility after the central bank’s unexpected and aggressive intervention in the foreign exchange market this week, accelerating a pick up in option volumes.
Rupee option volumes, in a rare occurrence, surpassed that of the Australian dollar this week, according to data from the Depository Trust and Clearing Corporation. Further, activity in rupee options is two-and-a-half times that of the Swiss franc.
The surge in option volumes follows heavy intervention by the Reserve Bank of India (RBI) to support the currency. The central bank stepped in on Monday to prevent the unit from slipping past the 88 handle against the U.S. dollar and intervened again on Tuesday.
The rupee rebounded after the intervention and briefly surpassed the 86.50 level on Wednesday. Its trading range between 86.46 and 87.95 this week is the widest in at least two years.
Volumes in rupee options have been on the higher side in recent weeks, driven by increasing confidence in the currency’s decline, a Singapore-based currency trader at a bank said.
India’s sluggish growth combined with an interest rate cut by the RBI and foreign outflows from local stocks have spurred bearish bets on the rupee. The uncertainty around U.S. President Donald Trump’s stance on tariffs has given investors one more reason to take short positions on the domestic unit.
The rupee was last quoted at 86.88 to the U.S. dollar, little changed from Wednesday. A rise in U.S. yields after hot U.S. inflation data had little effect on the currency and its Asian peers.
(Reporting by Nimesh Vora; Editing by Sonia Cheema)
