Short yuan-long rupee trades catch the eye

Mumbai: The Federal Reserve‘s commentary and the course of the dollar may dominate global market discussions, but a set of India-focused investors are moving their rupee trading calls to the Chinese yuan from the greenback, with Mint Road seen smoothening swings in exchange rates involving New Delhi’s second-largest trade partner.

“I have also noticed that since the beginning of the year, there has been a lot of interest in buying Indian rupees, not against the US dollar but against some of the other Asian currencies, especially the RMB (Chinese currency),” said Patrick Law, Head of Asia Pacific Fixed Income, Currencies, and Commodities Trading, Bank of America.

So far in 2024, the Chinese yuan has weakened considerably versus the US dollar as the world’s second largest economy battles multiple challenges in its post-COVID recovery. The rupee, however, has outperformed its Asian peers versus the greenback as a world-beating growth outlook draws in overseas funds.

Dollar Not Only Play in Town Short Yuan-Long Rupee Trades Catch the Eye, RBI Unlikely to Stay on SidelinesAgencies

“The short RMB-long Indian rupee trade (a trade betting on the rupee) is one of the popular ones that people were participating in. I would watch out for that,” Law said.

Beyond a point, however, the Reserve Bank of India is expected to step in to rein in the rupee’s appreciation versus the Chinese currency as the central bank sticks to its “broad playbook” of managing volatility and ensuring smooth two-way flows, said Rahul Bajoria, head of emerging markets Asia economics, Barclays.

“We expect the RBI to continue defending 83.40/$1…CNH/INR however needs to be tracked closely as there has been little tolerance to let the rupee appreciate beyond 11.35 against the yuan,” said Abhishek Goenka, founder, IFA Global.

On Thursday, the rupee was at 11.59 per yuan, having gained 1.1% versus the Chinese currency so far in 2024, Bloomberg data showed. Over the same period, the yuan has shed 1.8% against the US dollar, while the rupee has depreciated 0.2% versus the greenback.

So far in 2024, the rupee has fared better versus the US dollar than the Philippine peso, the Chinese yuan, the Singapore dollar, the Indonesian rupiah, the Malaysian ringgit, the Taiwanese dollar, the South Korean won, the Thai baht and the Japanese yen, the data showed.

“The yuan has been one of the currencies under consideration to keep the rupee stable. You can say there’s a sort of unofficial basket which the RBI follows. In that, the yuan has a detailed representation because it is the largest in the emerging market currency space and we have huge trade with China,” said Anindya Banerjee, Kotak Securities’ vice president, currency derivatives.

“In a way, both the People’s Bank of China and the RBI are trying to achieve the same objective by keeping the volatility low against the US dollar,” he said.

The RBI has over the past few months been strengthening its buffer of foreign exchange reserves by likely absorbing dollar inflows from local markets. Data released last week showed that the RBI’s headline forex reserves were at an all-time high of $642.5 billion in the week ended March 15.

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