Speculators make the most of rupee swings

Volatility is back in India’s currency markets, and so are big-time arbitrage opportunities for traders.

Wild gyrations in the rupee are offering traders the scope to exploit pricing differences between offshore and onshore rupee-dollar forwards and exchange-traded futures markets.

The gap between overseas and Indian platforms has widened to up to 15 paisa compared with just 3 paisa about a week ago, giving spread betters the opportunity to make quick gains.

Broadly, the arbitrage opportunity ranged between 8 and 15 paisa in the past seven trading sessions, dealers said.

“The gap between one-month forwards in overseas over-the-counter market (NDF) and similar maturity exchange-traded futures market has significantly widened over the week,” said Anindya Banerjee, currency analyst at Kotak Securities.

“Typically, select foreign portfolio investors or jewellers rush to gain from such trading opportunities as they try to make good losses incurred from wild exchange rate swings.”

“If the rupee slips beyond 67, the decline should trigger more arbitrage opportunities amid high volatility,” said Banerjee.

The rupee gained marginally by 0.21 per cent on Thursday to close at 66.76 a dollar. It has lost about 3 per cent this month as rising US Treasury yields are triggering capital outflows from emerging markets, including India.

Currency broking units play a major role in arbitrage with their offshore units. For example, If X is buying/selling dollars from domestic market through a broker, X’s related unit in Dubai or Singapore will sell/buy the currency via the same broker that earns fees for carrying out transactions. “Arbitrage only erupts when there is volatility in the local currency market,” said K N Dey, founder, United Financial Consultant, a Mumbai-based forex advisory firm.