NDF REPORT 07/02/2022
NDF REPORT 07/02/2022
What are NDF’s?
A non-deliverable forward (NDF) is a cash-settled, and usually short-term, forward contract. The notional amount is never exchanged, hence the name "non-deliverable."
An NDF is usually executed offshore, meaning outside the home market of the illiquid or untraded currency. For example, if a country's currency is restricted from moving offshore, it won't be possible to settle the transaction in that currency with someone outside the restricted country. However, the two parties can settle the NDF by converting any of the potential profits and losses on the contract to a freely traded currency. Any profits/losses will be received in a freely traded currency such as the US Dollars or some of the other currencies as seen below.
Most of the NDF trading is done with the USD as the base currency, although there are also active markets using the Euro, Japanese Yen and the British Pound.
What are the largest NDF Currencies?
The largest NDF markets are in the Chinese yuan, Indian rupee, South Korean won, New Taiwan dollar, Brazilian real and Russian ruble. The largest segment of NDF trading takes place in London, with active markets also in New York, Singapore and Hong Kong.
USD/INR is rebounding from near the 74.60 region, currently trading at 74.73, up 0.11% so far. The spot is tracking the bounce in the US dollar amid a mixed market mood and the NFP beat. Most of the economists surveyed by Reuters said that they expect the Reserve Bank of India (RBI) to raise repo rate second time this year to 4.50%, lifting the sentiment around the Indian rupee.
USD/IDR struggles to extend early Asian session gains around $14,340 after strong Indonesia inflation figures. With this, the Indonesia rupiah (IDR) bulls can bargain with the sellers as the pair rejects the previous two-day downtrend.
That said, Indonesia Inflation rose past 2.15% market consensus and 1.87% prior to 2.18% YoY during January. Further, Core Inflation also improved to 1.84% versus 1.71% expected and 1.56% previous readouts.
Other than the upbeat Indonesia data, easing coal emergency in the world’s top exporters of thermal coal joins reopening of the island of Bali for foreign tourists from February 04 to keep USD/IDR bears hopeful.
According to FXStreet, the Korean won depreciated by 1.4% against the US dollar in January. Economists at Société Générale expect the USD/KRW pair to edge higher towards 1217727. Holding above 1185 is crucial for persistence in up move.
“USD/KRW is expected to inch higher towards next projections at 1217 and 1227.”
“Defending a multi-month trend line at 1185 will be crucial for persistence in up move.”
USD/BRL erased the 200-day moving average (DMA) at 5.37 earlier this week and is now lining up a test of 5.22.
200-DMA at 5.37 to cap an initial bounce.
“Next potential support is located at 5.22, the 61.8% retracement from last June.”
“An initial bounce is likely however 200-DMA at 5.37 is likely to cap.”
“If the downtrend persists below 5.22, next potential objectives would be at 5.11, last September low and the lower band of the range at 4.95/4.89.”
USD/CNH hovers around $6.3620-15 as Chinese traders return from a week-long break on Monday.
The Chinese currency (CNY) pair’s recent weakness ignores softer activity numbers but hopes of easing inflation and chatters surrounding the stronger yuan while paying attention to talks of easing inflation in China. China’s China Caixin Services PMI dropped to 51.4 in January, versus 52.9 market consensus and 53.1 prior.
Technically, the pair drifts lower between the 200-SMA and 100-SMA, around $6.3645 and $6.3540 respectively. Also acting as trading filters is a one-week-old descending support line around $6.3470 and a monthly horizontal resistance zone near $6.3760-70.
It should be noted, however, that the USD/CNY buyers remain unconvinced below January’s top surrounding $6.3975 whereas the bears may aim for the multi-month low, marked the previous month around $6.3235, on breaking the $6.3470 support.