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FX Options Traders Forced to Reverse Course by Trump Tariff Move - BLOOMBERG
(Bloomberg) -- Less than a day after exiting bullish dollar option trades, some leveraged funds found themselves back in them on Tuesday after US President Donald Trump updated his tariff stance.
Some hedge funds returned to currency options on Tuesday that gain in value if the dollar rises versus peers, especially the Canadian dollar, after Trump said that he plans to enact tariffs of as much as 25% on Mexico and Canada by Feb. 1. Hours prior, they exited similar trades after Trump appeared to delay imposing further tariffs immediately on trading partners.
“The market is still finding its feet on how to trade the spate of orders being executed by Trump,” said Mukund Daga, head of foreign-exchange options for Asia at Barclays Bank Plc in Singapore.
Long dollar calls versus the yuan, euro and Canadian dollar were unwound just after Trump’s inauguration ceremony because tariffs weren’t specifically mentioned, Daga said. After the Canada and Mexico announcement, “we have seen a few speculative buyers of dollar call options against the Canadian dollar especially re-emerge,” he added.
Dollar call options have been in high demand following Trump’s election win, with the expectation of higher tariffs fueling inflationary concerns and helping to propel US yields and the greenback higher. The dollar whipsaw seen on the US president’s day one in office shows traders the extent of volatility that lies ahead.
Dollar-Canadian dollar options were the second most actively traded on The Depository Trust & Clearing Corporation as of 11:50 am Hong Kong time. It was the second-most-traded currency pair on DTCC on Monday, trailing only euro-dollar.
Going long the greenback versus the loonie via spot or options “was a very popular trade among the hedge fund community in the past two weeks,” said Jian Cao, global head of FX options at RBC Capital Markets in Toronto. “We started to see some unwind of those trades” on Monday, Cao said.
Bloomberg’s gauge of the greenback had its worst day since November 2023 on Monday, after President Trump ordered his administration to address unfair trade practices globally rather than impose tariffs straight away.
“A broad dollar selloff could present opportunities to scale back into trades in some instances so we’re also expecting the longer-term macro names to use this opportunity to re-enter trades at a better level,” said Nathan Swami, Singapore-based head of FX trading for Asia Pacific at Citigroup Inc.
