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Informist, Thursday, Aug 1, 2024

By Kabir Sharma

MUMBAI – The rupee is likely to open steady against the dollar as the positive impact of a weak dollar index may be offset by banks' dollar buys for oil marketing companies, dealers said. 

The Indian currency is likely to open near 83.7000 a dollar today, and move in a range of 83.60-83.80 a dollar. The rupee closed at 83.7200 a dollar on Wednesday, slightly up from Tuesday's close of 83.7275 a dollar. 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 fell after the outcome of the US Federal Open Market Committee late on Wednesday. The US Federal Open Market Committee kept the federal funds target rate unchanged at 5.25-5.50% at its July meeting, as was widely expected. This is the eighth consecutive meeting in which the US central bank has kept the policy rate unchanged.

The change in commentary from the release also reflected a softer monetary policy outlook. "Job gains have moderated, and the unemployment rate has moved up but remains low," the FOMC said. In the previous policy meetings, it kept reiterating, "job gains have remained strong, and the unemployment rate has remained low".

Powell's remarks affirmed market participants' assessment of a rate cut in September. Even before Wednesday's rate decision, investors started seeing the Fed cutting rates in September, with the CME FedWatch tool showing Fed Funds futures traders seeing a 100% chance of a rate cut at its next meeting.

The dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 103.96 at 0808 IST. The index was at 104.02 on Wednesday and 104.45 on Tuesday. 

Some dealers said oil marketing companies will aggressively buy the greenback today, given the uncertainty around the prices of the commodity. On Wednesday, oil prices surged by almost 3% due to concerns among investors about the potential escalation of the West Asian conflict following the assassination of a Hamas leader in Iran, coupled with a significant decrease in US crude inventories.

According to government data, US crude oil inventories dropped by 3.4 mln barrels last week, surpassing the 1.1 mln-bbl decrease anticipated by analysts in a Reuters survey. This marks the fifth consecutive week of declines, the most extended period of reductions since January 2021. The September Brent crude contract on the Intercontinental Exchange was at $81.36 per bbl at 0808 IST, compared with $80.84 per bbl on Wednesday and $78.63 per bbl on Tuesday. 

However, inflows on account of Adani Energy Solutions' qualified institutional placement and the initial public offering of Ola Electric Mobility will support the rupee. 

PREMIUM

Premiums on dollar/rupee forward contracts are expected to rise further, as US Treasury yields fell on Wednesday after the outcome of the US Federal Open Market Committee's meeting. US Treasury yields fell after Powell hinted at a potential rate cut in September, provided inflation cools down, after the Fed kept its benchmark rates steady on Wednesday.

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 1.87% at 1530 IST on Wednesday.  

End

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

Edited by Vidhi Verma

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