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Informist, Tuesday, Jul 30, 2024

By Kabir Sharma

MUMBAI – The rupee is expected to open steady, near its record low, as the impact of a firm dollar index may be offset by a slump in crude oil prices, dealers said. 

The Indian currency is likely to open near the record low of 83.7375 a dollar today, and move in a range of 83.60-83.80 a dollar. The rupee closed at 83.7275 a dollar on Monday, unchanged from Friday's close. Dealers expect the RBI to intervene by way of dollar sales in the domestic spot market in early trade to prevent runaway depreciation in the Indian unit. 

The dollar index rose on Monday and remained firm ahead of the outcome of two key policy meetings, the US Federal Open Market Committee's meeting and the Bank of Japan's monetary policy meeting, on Wednesday. 

The US Federal Reserve is widely expected to stand pat on rates in this meeting, but Fed Fund futures are projecting 100% chances of a rate cut in its September meeting, according to the CME FedWatch tool. Even though the Federal Reserve doesn't convene in August, Powell might utilise the Jackson Hole meeting of central bankers later in the month to ready the market for a rate reduction, allowing policymakers additional time to evaluate economic information.

The Bank of Japan is expected to raise its key policy rate by 10 basis points, according to a Reuters poll. This decision is expected to be aimed at protecting the yen from again falling to historic lows against the dollar. The dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 104.64 at 0815 IST. The index was at 104.57 on Monday and 104.33 on Friday. 

On Monday, oil prices dropped by 2% following Israel's indication that its reaction to a Hezbollah rocket attack in the Israeli-occupied Golan Heights would be measured to prevent escalating the situation into a full-scale war in West Asia.

Also, Citi reduced China's growth prediction to 4.8% from 5% due to growth falling short of analyst expectations in Apr-Jun. They highlighted a further decline in economic activity during July. This also weighed on crude oil prices over demand concerns from China, dealers said. The September Brent crude contract on the Intercontinental Exchange was at $79.41 per bbl at 0814 IST, compared with $79.78 per bbl on Monday and $80.51 per bbl on Friday. 

The rupee may also be pressurised from month-end dollar demand from corporates, dealers said. Oil marketing companies may also demand the greenback aggressively given the very sharp fall in crude oil prices, they said. 

PREMIUM

Premiums on dollar/rupee forward contracts are expected to rise further, as US Treasury yields were a tad down on Monday. US Treasury yields were slightly lower on Monday, ahead of the US FOMC meeting, which starts today. Investors also look forward to the US Job Openings and Labor Turnover Survey for June, due later today. 

Some banks are expected to buy forward dollars due to heightened expectations of a rate cut in the US in September, dealers said. However, exporters are expected to continue to sell forward dollars, noting higher forward levels, which may weigh on premiums, they said. 

On an annualised basis, the premium on the one-year exact-period dollar/rupee contract is seen at 1.80-1.90%. It settled at 1.83% at 1530 IST on Monday.  

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Vidhi Verma

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