Anna 
The Indian rupee’s prolonged stability has prompted banks and corporate treasuries to increasingly explore cross-currency pairs like euro/dollar, pound/dollar, and dollar/yen in search of returns. The dollar/rupee has remained within a narrow range for months due to interventions by the Reserve Bank of India (RBI) on both sides, leading to a significant decline in rupee volatility, reaching its lowest point in over a decade.
According to a treasury official from a state-run bank, making profits from USD/INR is currently “nearly impossible.” This challenge has fueled growing interest in cross-currency pairs, where the volume of trades by banks has surged nearly 50% year-on-year. Data from the RBI’s Database on Indian Economy reveals that turnover of spot crosses, settled in two business days, reached $1.37 trillion between January 1 and November 24, compared to $920 billion in the same period in 2022.
While the RBI doesn’t provide a currency pair-wise breakup of volumes, bankers suggest that the largest volumes are on the euro/dollar pair, followed by the pound/dollar and the dollar/yen.
The appeal of cross-currency pairs lies in their higher volatility and responsiveness to fundamentals and technicals, unlike the dollar/rupee pair, which is deemed “hard to analyze,” according to the state-run bank official.
For corporates, forward cancellation volumes on cross-currency pairs have seen a 30% year-on-year increase, serving as an indicator of speculative activity. Last year, over 80% of cross-currency forward contracts were canceled. Companies engage in speculative activities by booking foreign currency contracts beyond the spot date and then canceling them before maturity.
“With nothing happening on USD/INR, we are adding value to our clients by making recommendations on crosses that tie up to their risk profile and to a certain extent to their hedging requirements,” noted Kunal Kurani, Associate Vice President at FX risk advisory firm Mecklai Financial.
