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South China Morning Post
6 days ago
- Business
- South China Morning Post
Which currencies may trump the US dollar? Traders look to the yuan, the Aussie and the won
Traders are seeking alternatives to the euro when shorting the US dollar as they look to capitalise on expectations for further weakness in the currency. Long euro positions against the US dollar remain in favour due to optimism over increased defence spending in the single-currency region. Traders, though, are looking to bet that currencies such as the Chinese yuan , Australian dollar and South Korean won will strengthen versus their US peer on expectations the Federal Reserve will resume interest rate cuts and as American exceptionalism fades. Dollar-yuan option trading volume on the Depository Trust & Clearing climbed to a one-month high last week, with investors paying a premium to speculate on downside moves in the pair versus upside ones. Volumes in Australian dollar call options, which gain if the currency rises against the US dollar, were nine times greater than puts, data from the Chicago Mercantile Exchange Group's central limit order book showed on July 1. 'The most recent demand in FX options has been a play in USD/CNH lower via dollar put digitals,' as well as other downside option structures, said Mukund Daga, head of foreign-exchange options for Asia at Barclays Bank in Singapore. 'This has been on the back of the most recent truce pact that US President Donald Trump has signed with China,' he said. A put digital option refers to a strategy that offers a fixed payout if the currency pair falls below a predetermined level when it expires. There's also an increased interest in bullish option structures for the Korean won, Daga said.
Mint
6 days ago
- Business
- Mint
Traders Look Beyond Euro for Next Round of Short Dollar Bets
(Bloomberg) -- Traders are seeking alternatives to the euro when shorting the dollar as they look to capitalize on expectations for further weakness in the US currency. Long euro positions against the greenback remain in favor due to optimism over increased defense spending in the single-currency region. Traders though are looking to bet currencies such as the Chinese yuan, Australian dollar and South Korean won will strengthen versus their US peer on expectations the Federal Reserve will resume interest-rate cuts and as American exceptionalism fades. Dollar-yuan option trading volume on the Depository Trust & Clearing Corp. climbed to a one-month high last week with investors paying a premium to speculate on downside moves in the pair versus upside ones. Volumes in Australian dollar call options, which gain if the currency rises against the greenback, were nine times greater than puts, data from the Chicago Mercantile Exchange Group's central limit order book showed July 1. 'The most recent demand in FX options has been a play in USD/CNH lower via dollar put digitals,' as well as other downside option structures, said Mukund Daga, head of foreign-exchange options for Asia at Barclays Bank in Singapore. 'This has been on the back of the most recent truce pact' that US President Donald Trump has signed with China, he said. A put digital option refers to a strategy that offers a fixed payout if the currency pair falls below a predetermined level when it expires. There's also an increased interest in bullish option structures for the Korean won, Daga said. Hedge funds are betting the won may replicate the Taiwan dollar's surge in early May, when the central bank allowed its currency to appreciate to help reach a trade deal with the US. The removal of political uncertainty in South Korea may also help support the won. What Bloomberg Strategists Said... 'A weaker dollar and a steady, gradually appreciating yuan have underpinned KRW gains in recent weeks despite tariff risks. From a valuations lens, the won remains competitive. Its real effective exchange rate is still cheap relative to historical averages, leaving room for further appreciation without threatening export dynamics.' — Mary Nicola, Macro Strategist, Singapore While long euro trades are still popular, interest in the Australian dollar is growing, according to Troy Fraser, head of foreign-exchange sales for Australia and New Zealand at Citigroup Inc.. 'We have seen interest mainly from hedge fund clients to put on AUD/USD topside in the short tenors over the past few weeks,' he said. One currency that traders appear less enthusiastic about is the yen. Appetite for long positions in the currency cooled after it tumbled versus the dollar in parts of May and June. 'USD/JPY short has certainly been a widow-maker,' said Antony Foster, head of Group-of-10 spot trading at Nomura International Plc in London. 'There are trade talks and politics involved which, once resolved, might help USD/JPY revert lower again, but whilst the risk is there, people are reluctant to really involve themselves.' More stories like this are available on
Yahoo
27-05-2025
- Business
- Yahoo
Hedge Funds Bet on Korean Won to Mirror Taiwan Dollar's Surge
(Bloomberg) -- Hedge funds are ramping up bets in the options market that the South Korean won will mirror the Taiwan dollar's recent rally against the greenback. NY Private School Pleads for Donors to Stay Open After Declaring Bankruptcy UAE's AI University Aims to Become Stanford of the Gulf NYC's War on Trash Gets a Glam Squad Pacific Coast Highway to Reopen Near Malibu After January Fires Dollar-won option trading volume spiked to this year's high last week, according to the Depository Trust & Clearing Corporation data, as speculation grew that Korea and the US discussed the won's direction in their currency talks. Barclays Bank Plc said there's been increased demand for put options from hedge funds. A surge in the Taiwanese dollar this month has reshaped market expectations for Asian currencies. Investors see the won as a likely candidate for comparable gains, as Korea's trade surplus with the US adds pressure on local authorities to tolerate a stronger currency. The US last year added Korea to its foreign-exchange monitoring list — which already included Taiwan. A key question 'most hedge funds have been asking is: which currency pair can have the same magnitude of move that was observed in' the Taiwan dollar, said Mukund Daga, head of foreign-exchange options for Asia at Barclays in Singapore. 'This has led to decent demand for dollar-won put options in digital and vanilla formats by fast-money names.' Vanilla options are standard contracts with no special features attached to them, while digital trades offer a fixed payout if the FX pair hits a preset level at expiration. Demand for dollar-won put options with notional sizes over $60 million outpaced call options on DTCC by a 3:2 ratio on Wednesday, underscoring the bias for bearish bets on the pair. The premium to hedge dollar-won downside over the next month compare to the upside, as measured by risk reversals, traded near a 21-year high last week. The dollar-won pair 'was already seeing active downside interest for digitals and put spreads since the big move in the Taiwan dollar a few weeks back,' said Saurabh Tandon, global head of foreign-exchange options at Standard Chartered Bank in Singapore. 'The recent FX related comments have spurred on interest in downside dollar-won trades.' The tariff talks between the US and its trading partners have raised speculation that President Donald Trump's administration is open to a weaker greenback. For many, the won is becoming a favored proxy for broader shifts in US-Asia trade dynamics and a key hedge against declining dollar strength. The won rallied last week as local media cited an unnamed government official as saying that the US believes a relatively weak local currency is a fundamental cause of Korea's trade surplus. The finance ministry has said that while FX talks with the US are ongoing, nothing has been decided yet. The Taiwan dollar's 7% surge this month has raised hedging costs for Taiwanese insurers, who are large holders of US-dollar assets. That's making the won a major proxy for hedging, according to a Bank of America note dated May 21. The 'market is showing insatiable appetite for owning optionality in the won,' said Ivan Stamenovic, head of Asia Pacific G-10 FX trading at Bank of America Corp. 'We are seeing major interest across the term structure indiscriminate of tenors. --With assistance from Jaehyun Eom and Betty Hou. Why Apple Still Hasn't Cracked AI How Coach Handbags Became a Gen Z Status Symbol Mark Zuckerberg Loves MAGA Now. Will MAGA Ever Love Him Back? Inside the First Stargate AI Data Center AI Is Helping Executives Tackle the Dreaded Post-Vacation Inbox ©2025 Bloomberg L.P. Sign in to access your portfolio
