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OPTIONS: CNH Options Activity Muted, But Hesitant Backdrop Persists

OPTIONS
  • Mirroring the more muted activity in spot markets, CNH, CNY options trades sits similarly below average for this time of day, with a modest preference for USD/CNY puts over calls in DTCC-tracked trade. 
  • The risk reversals curve has erased a large part of the early August downleg - despite the persistent weakness in the spot USD index - but still favours steady pressure on USD/CNH into year-end. Options covering the 3m horizon remain in demand, evident in 3m implied holding either size of the 6.00 handle, a level markets have not consistently held above since Q1 2023. 
  • The front-end of the CNH vol curve remains subdued and comfortably below recent highs - that said, 2w vols are still close to 2 vol points above the YTD average - which may be factoring into policymakers' thinking. Headlines earlier today cited reports that the Chinese FX regulator is gauging the impact of the strong CNY currency on the exporting sector, and how currency fluctuations are impacting hedging costs and the approach to currency risk.
  • Both of these factors will have been squeezed by the move in spot and the CNH 3m forward point discount - which hit ~690 points in early August for the first time since at least 2010. 
     
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