Waning interest on Asian currency options amid expectations the currencies will remain range bound against the dollar prompted implied volatility to fall last week. "The market has been grinding around this range for a while," said Lee Chee Pin, head of foreign exchange at Bank of America in Singapore. He added, "There's lack of a clear direction." For instance, traders said one-month implied vol on Taiwan dollars fell to 4.8% from 5.8% two weeks ago while vol on the Korean won fell to 5.9% from 6.7% over the same period. Yen Ping Ho, fx strategist at JPMorgan in the Lion City, said the Taiwan dollar was in a tight range of TWD31.50-60 last week while won was around KRW1010-1015. Ho noted Federal Reserve tightening in the U.S. would provide dollar support in the near term, but persistent concerns over the twin deficits should mean eventual dollar weakness. JPMorgan sees the dollar at TWD29 and KRW1000 by year-end.
Separately, Ho is predicting the widely-discussed Chinese renminbi will revaluation will happen in the next three-to-six months. "The house view is that the band will be widened a bit," he said. Market officials said hot money speculative positions have slowed down in recent months after expectations a revaluation would occur in the first quarter did not bear fruit. "Some people were burned and are not as aggressive," said one trader. Ho sees a widening of 1-1.5% on each side of the band happening. "I doubt there will be anything to drastic at first," he said. The currency is pegged to the dollar at RMB8.2.
