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Informist, Friday, Aug 2, 2024

By Kabir Sharma

MUMBAI – The rupee is expected to open steady against the dollar today as a firm dollar index may offset the positive impact of lower crude oil prices, dealers said. "Oil prices and fall in UST (US Treasury yields) will support, but gains could be capped as the dollar rebounded on Thursday and gained this morning amid safe haven appeal for greenback due to escalating Middle East tensions," a dealer at a brokerage firm said. 

The Indian currency is likely to open near its record low of 83.7500 a dollar today and move in a range of 83.60-83.80 a dollar. On Thursday, the rupee closed at 83.7175 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 remained firm, despite weaker than expected economic data from the US reinforcing expectations of a rate cut by the Federal Reserve in September. Initial jobless claims increased by 14,000 to 249,000 in the week ended Jul 27, according to Labor Department data released Thursday. The median forecast in a Bloomberg survey of economists called for 236,000 applications. 

Further, The Institute for Supply Management's manufacturing purchasing managers index fell to 46.8 last month from 48.5 in June. A poll of economists by Reuters forecast the purchasing managers index to rise to 48.8. A reading below 50 suggests that the sector is in contraction, with the reading above it signifying an expansion.

The dollar strengthened due to increasing geopolitical tensions, providing a safe-haven appeal. In contrast, the British pound declined following the Bank of England's decision to reduce interest rates from a level not seen in 16 years. The dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 104.31 at 0818 IST. The index was at 104.34 on Thursday and 104.02 on Wednesday.

Oil prices fell Thursday on demand worries after data from China showed that its manufacturing activity shrunk for the first time in nine months. Traders were largely unaffected by concerns of the conflict between Israel and Hamas spreading to other nations in the region. The October Brent crude contract on the Intercontinental Exchange was at $79.84 per bbl at 0818 IST, compared with $79.52 per bbl on Thursday and $80.84 per bbl on Wednesday. 

Dealers said oil market participants may continue to stock up on the commodity given the uncertainty around its future outlook, which may weigh on the Indian unit. On the other hand, foreign fund inflows for Ola Electric's initial public offering and Adani energy solutions qualified institutional placement, may support the Indian unit, they said. 

PREMIUM

Premiums on dollar/rupee forward contracts are expected to rise further, as US Treasury yields fell further on Thursday after the outcome of the US Federal Open Market Committee's meeting. US Treasury yields fell on the back of softer than expected economic data from the US on Thursday, strengthening hopes of a rate cut by the US Federal Reserve in September. Such weak data came after Powell on Wednesday indicated possibility of a rate cut if inflation continues on its downward path.

On an annualised basis, the premium on the one-year exact-period dollar/rupee contract is seen at 1.85-1.95%. It settled at 1.87% at 1530 IST on Thursday.  

End

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

Edited by Vidhi Verma

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