(Bloomberg) — Currency traders are hedging against a volatile yuan after the U.S. presidential election, sending a measure of expected swings to the highest in more than nine years.
The offshore yuan’s one-week implied volatility — often used as a proxy of market risk — has more than doubled in the past week to the highest since Bloomberg began compiling the data in 2011. The overnight tenor is also elevated, surging as much as 15 percentage points on Tuesday to a more than two-year high. The metrics based on options track forecasts for movement in the Chinese currency against the dollar.
Currency traders elsewhere are also hedging for wilder moves. Overnight measures for the Australian dollar and sterling were at the highest since April on Tuesday, data compiled by Bloomberg show. A broader JPMorgan Chase (NYSE:) & Co. index tracking implied volatility for emerging-market currencies closed at a one-month high on Monday.
President Donald Trump faces Democrat challenger Joe Biden in Tuesday’s vote, with some initial results expected Wednesday in the Asia region. Biden has been seen as potentially more moderate toward China in the trade war, with some market watchers predicting the countries’ almost-destroyed relationship could improve under the Democrats.
Another contributing factor for greater yuan swings may be that since last week, some Chinese lenders stopped including a volatility-smoothening factor when submitting their reference rates to the country’s central bank.
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