From speculators to hedgers, anticipation of weaker rupee piling up, data shows

By Jaspreet Kalra and Nimesh Vora

MUMBAI, Jan 7 (Reuters) –

Worries over the impact of U.S. President-elect Donald Trump’s trade policies on currency markets, alongside weaker macro-fundamentals in India, has increased n hedging activity alongside speculative bets against the South Asian currency.

The combined notional value of options betting on a decline in the rupee versus the U.S. dollar has nearly doubled to more than $26 billion over November and December compared with the previous two months.

The U.S. election results were out on Nov. 6. Meanwhile, data released in the last week of November showed India’s GDP growth slowed to a seven-quarter low.

Indian importers have booked forex forward contracts worth more than $48 billion in December, a 44% month-on-month jump and a 36% increase year-on-year, to manage their forex risks, data from clearing house CCIL showed.

The forward contracts were larger than those in March, the last month of the fiscal year, which typically witnesses the highest hedging activity.

The rush to buy protection against the rupee’s decline came on back of the Indian currency shedding 1.34% in December, the worst monthly performance in two years. The average monthly advance or decline in 2024 before that was 0.24%.

Exporters, too, ramped up forward dollar sales in December to a six-month high of $23.4 billion.

The 1-month dollar-rupee forward premium has nearly doubled to an average of 18 paisa over December, up from 10 paisa in the previous month. The rise in near-term premiums shows high demand for dollars.

Forward points have spiked much more than implied by interest rate differentials, reflecting some additional FX risk premia, Michael Wan, senior currency analyst at MUFG Bank, said in a note.

Market participants sense that a pick-up in rupee volatility may be in the cards for the local currency after a change of guard at the Reserve Bank of India.

Analysts and economists reckon that the central bank may loosen its grip on the currency in 2025 and allow it to depreciate in line with its regional peers to remedy overvaluation, which can be a drag on India’s exports.

“The top two priorities for RBI have been volatility and relative valuation. However we believe relative valuation will have precedence over volatility in the near term,” Abhishek Goenka, chief executive at FX advisory firm IFA Global said.

(Reporting by Jaspreet Karla and Nimesh Vora. Editing by Gerry Doyle)