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Foreign Exchange

USDCNY vols hit in February; near five-year low

USDCNY vols collapsed in February, with implied volatility trading near a five-year low.

After opening the month at around 4%, at-the-money one-year vols were trading at 3.1% on Thursday, after a swift sell-off in Asian trade earlier. According to option traders, there was strong selling interest from one US bank in Asia to clear flow quickly, which has exacerbated a drop in one-year USDCNY from 3.3 down to 3.15, before the market reopened in New York at 3.1.

Traders say that while overall size did not appear to be overly large in terms of notional, it is indicative of the market’s lack of interest for warehousing risk.


 USDCNY 1Y vols in steady decline in February

 
 Source: Bloomberg

A big driver behind the overall move lower in USDCNY vols this month has been corporate supply linked to onshore hedging activity, says one trader at an Asian bank. Furthermore, there has been dampened interest in going short USDCNY, with consensus estimates calling for just a 2-3% fall in USDCNY this year.

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