Offshore Dollar Buying Linked to Emerging-Market Currency Moves

Offshore dollar buying was associated with domestic spot depreciation across emerging markets, with price discovery shared between onshore and offshore markets.

In daily panel regressions, a $1 billion increase in order flow buying U.S. dollars and selling emerging-market currencies was associated with a 9 to 11 basis-point depreciation in onshore spot rates. Offshore non-deliverable forward (NDF) rates moved 18 to 19 basis points on impact, though that estimate was less precise. The regressions show an association between order flow and exchange-rate returns, not proof that the trades caused the currency moves.

Published Oct. 16, the study covers 10 currency pairs from Jan. 1, 2013, through Dec. 31, 2025: the Brazilian real, Chilean peso, Chinese renminbi, Colombian peso, Indian rupee, Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso and New Taiwan dollar, each paired with the U.S. dollar. Rates are quoted in local-currency units per dollar, so an increase signals local-currency depreciation.

The sample averaged about 5,500 NDF trades and $30 billion in notional per day. Cleared volumes in recent years were above that average. The transaction records cover centrally cleared trades, excluding bilateral transactions that were not centrally cleared. An NDF provides currency exposure without requiring delivery of the underlying currency; the contract settles in U.S. dollars.

Price discovery varied with trading activity. Onshore markets led in the most actively traded pairs, while offshore NDFs accounted for a larger share in less active pairs. At high frequency, changes in offshore order flow affected NDF and domestic spot rates over spans of minutes.

India’s rupee provides a policy example. On June 1, 2020, RBI directions took effect allowing eligible Indian banks operating International Financial Services Centre Banking Units to offer rupee NDFs to nonresidents; the offshore-onshore spread narrowed afterward. The spread averaged about 3 basis points in the first quarter of 2026, neared 40 basis points in late March and topped 80 basis points after April restrictions.

On Apr. 1, 2026, the Reserve Bank of India (RBI) barred authorized dealers from offering INR non-deliverable derivatives to resident or nonresident users. The RBI withdrew those instructions on Apr. 20 and replaced them with restrictions on INR derivative contracts with related parties, subject to exceptions. Spot and forward series for the episode extend through May 1, 2026, but the cleared-trade records end in 2025 and do not show order flow during the spread move.