.jpg)
During August, the traded volume in Rofex totalled u$s 2,845 millions, surpassing by 43% the volume traded in the same period of the previous year. This is the second consecutive monthly record, as in July u$s 2,643 millions were traded. In spite of the gradual volatility fall registered last week, the reversal of a lower US dollar trend caused an increase in short-term US dollar futures trades in ROFEX, reaching a volume higher than u$s1, 000 million, as was informed by Joaquin Perez Fadol, analyst of Rofex’s Development Management. As from the increase in the volume traded in Rofex, the implied rates curve gains relative importance as a benchmark curve, which can be extracted from futures trading. From such curve, it is possible to extract the market’s feeling on how the agitated trend may continue. Firstly, it is worth mentioning that implied rates were in average 30% over market rates. Secondly, through the month, the curve went from a flat situation at the beginning of the month to an inverted one by the middle of the month, ending in a temporary hump-shaped structure. From that it is inferred that the short part of the curve, which is most influenced by the monetary policy, shows that BCRA (Argentine Central Bank) intervention has its effect, at least by the end of the month. Basically, the hump-shaped structure is explained by the curve’s flattening expectations, that is falls in volatility, assured the economist Javier Marcus.
The last two months resulted in a series of factors that define the trend and the feeling in the local foreign exchange market: 1) strong depreciation of the Argentine peso – cash and future 2) important volatility increases in the exchange rate and other rates 3) increases in active and passive interest rates 4) the BCRA injecting liquidity and using reserves to moderate shocks´ impact. This cocktail originated in the volatility imported from the North American credit market, which generated a flight to quality effect, in which investors wish to rebalance their portfolios mitigating the exposition to high-risk assets, such as the positions in emerging countries, remarked Alejandro Bour – Rofex’s quantitative analyst.
With respect to the above mentioned factors, Bour emphasized that by the end of August the wholesale dollar in the cash market reached its historical maximum in the last 4 years, 3.173. The accumulated average depreciation of the Argentine peso of the last two months was around 2.5%. The effects were even greater in the futures market; in Rofex, December US dollar went from around 3.14 at the beginning of July to the current 3.301 registered in August 31. It must be considered that during August, Market depth increased and positions were traded up to March 2008.
Along with the fall in currency value came the volatility, which reached its maximum as from the last quarter of 2005, when the currency depreciated more than 4% in three months. Together with the US dollar volatility increase, the volatility of interbanking rates fluctuated in a range between 8 and 20 % p.a. and the BCRA was forced to increase rates 250 basis points so as to place its short-term bills in the primary market. In accordance with this monetary contraction, in August there were new placements of repos, the US dollar sale by the BCRA in the Exchange market, the reduction of reserves around one million dollars and the reduction of the monetary base, basically explained by the holding of notes and coins in the hands of the public. It is in this context that futures market trading continued with the strong positive trading tendency of the previous month, reaching its historical record.
Alejandro Bour concludes that in view of the expectation and uncertainty of the future in the financial and foreign exchange market, at present futures markets offer a horizon of predictability for monetary policy makers as well as for investors who seek to ensure the foreign exchange risk of their financial assets and for those people who seek to obtain returns of the current and future market volatility.
Click here for full details.
