Currency arbitrageurs rue missed opportunity due to Yuan's devaluation

MUMBAI: It is not just Indian exporters who are agonising over the Chinese yuan devaluation, but even well-heeled investors — playing the exchange rate differential between overseas markets and onshore — have been ruing a lost opportunity.

The difference between onshore and offshore rupee-dollar forwards market has narrowed significantly, to almost nil, from as high as 10-25 paisa two days ago as many expect the rupee to weaken. “A contraction in arbitrage opportunity would cushion RBI also as such trades were adding to the rupee liquidity back home,” said Anindya Banerjee, currency analyst, Kotak Securities.

“This (high arbitrage) is detrimental, especially when the RBI is facing a problem of plenty these days.” In this case, an arbitrage trade implies investors were buying dollars in non-deliverable forward markets and selling the same in domestic forwards. In one and two month contracts, the difference is now almost zero paise while it is five to six paise for three-month contract. The rupee on Wednesday weakened nearly 1% (59 paise) to close at 64.81 a dollar against 64.21 a day earlier. It hit intra-day low at 64.94. RBI too, has intervened as some state-owned banks were seen selling dollars to check the local unit’s steep fall, but it was not as strong as feared.

“With moderate intervention, RBI may be allowing some natural adjustment,” said Satyajit Kanjilal, CEO of Forexserve.