SINGAPORE – The Singapore dollar is emerging as a popular US election trade for currency option investors.
The premium to purchase a one-month call option, which increases in value if the US dollar gains against the Singapore equivalent, compared with a downside put option, is near its highest since May 2023. At the Depository Trust and Clearing Corporation so far this week, all notional trades near or more than US$100 million (S$132.6 million) on the currency pair have been call options, with maturities up to Jan 22.
Most central banks manage their economies through setting interest rates, but the Monetary Authority of Singapore does so by influencing the Singapore dollar’s nominal effective exchange rate, which is benchmarked against a basket of currencies of its major trading partners. That makes it effective as a proxy for macro investors wagering on Donald Trump winning the US presidential election.
“The general sentiment is that, in the event of a Trump win, it would be bullish for the dollar against its major peers, but even more so against Asia,” said Mr Mukund Daga, Singapore-based head of foreign exchange options for Asia at Barclays.
Hedge funds have shown interest in buying Singapore dollar call options expiring in the next three months, he said.
A currency option is a contract that grants the holder the right to buy or sell a certain currency at a specified exchange rate on or before a specified date. There are two types of currency options: A call option gives the holder the right to buy the underlying asset, and a put option gives the holder the right to sell it.
Traders are buying USD/SGD call options as they think the US dollar will strengthen against the Singapore currency before the options’ expiry date.
Traders said investors are also