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CNY Hedges Surge as China Re-introduces Two-Way FX Risk

OPTIONS
  • FX options notional crossing the DTCC topped $140bln on Friday, the highest single-session volumes of the year and the busiest market since mid-December and the activity triggered by the pre-Christmas central bank frenzy.
  • As noted last week, Friday’s trade was led by CNY hedging activity – and that remains the case early Monday, with the authorities’ pushback on CNY weakness re-introducing two-way risk to USD/CNY. Demand for USD/CNY downside is dominant so far Monday, evident in the put/call ratio nearing 2.00 in Asia-Pac/early European trade. 7.30, 7.26 and 7.25 put strikes have seen the most notable interest, a large number of which make up one- and two-month structures, thereby targeting late April and Late May expiries.
  • Other salient trades crossing so far today include interest in USD/CHF upside after last week’s surprise SNB rate cut. Crossing mid-morning, DTCC data shows a series of large trades consistent with 0.8825/0.8925 call spread, targeting an early May expiry.
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