Ok, here’s something interesting to ponder.
It was exactly one week ago when we noted that one-year implied vol. on the Indonesian rupiah (not exactly known as a bastion of stability) was sitting at the lowest since 2012 and that USDIDR 1-month implied volatility dropped to 9-year low late last month.
Our quick assessment: “Talk about ‘carry’ on.”
But here’s the thing, I’m not sure that the following chart, which basically shows volatility on the rupiah and the ringgit flatlining (“beeeeep“) is necessarily a good thing for anyone other than carry traders. Have a look at this:
Now obviously, that is not solely a function of market forces. Policy makers are engineering it.
The rather glaring question is what the hell happens in the event exogenous shocks conspire to upset the apple cart?
Is anyone even going to remember how to trade? And on top of that, why would anyone in their right mind hedge their FX exposure when volatility is non-existent? And if there’s no hedging, what happens if eventually the tide turns?
Maybe we’ll follow up on this tomorrow. Maybe not. Who knows. We like to keep things volatile.
The SNB thing was “betrayal”. How wrong was Carl Marx on international economics re. currencies and perverse cycles? Bigger implications lie at the core of this type of situation. And do carry traders mostly trust, or live next to their fixes?