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Informist, Monday, Aug 5, 2024

By Pratiksha

MUMBAI – The Reserve Bank of India's active intervention through dollar sales notwithstanding, the rupee settled at a record low against the dollar today as sentiment of risk aversion among investors on fear of a recession in the US sent equities across the globe in the red, dealers said.

"The global equity sell-off seems to have caused all the havoc," a dealer with a state-owned bank said. "But it also looks like that the RBI is loosening up a bit when it comes to the rupee." 

After falling 0.1% against the dollar, the Indian unit settled at a lifetime low of 83.8450 a dollar, against 83.7500 a dollar on Friday. The rupee moved in a range of almost 10 paise throughout the day. In contrast, other emerging market currencies rose in the range of 0.1-1.6% against the dollar, with the Malaysian ringgit being the best performer, tracking a slump in the dollar index. Apart from the rupee, the South Korean won fell 0.4% against the dollar.

The rupee opened at 83.7800 a dollar after quoting at 83.84 a dollar in the offshore non-deliverable forwards market 15 minutes before the opening of the domestic spot market at 0900 IST, as the RBI was likely to have sold dollars today in the offshore NDF market, dealers said.

However, shortly after opening, the rupee fell past the key technical support level of 83.80 a dollar. Worries about recession in the US sent ripples in share markets across the globe. Recession fears loomed large after data on Friday showed that the US job market had slowed sharply last month, prompting investors to bet heavily that the US Federal Reserves may announce a 50-basis-point rate cut at its meeting in September against expectation of 25 bps earlier. 

The US Labor Department report on Friday showed that employers in the US added just 114,000 jobs in July, well below the 215,000 jobs per month added over the last 12 months. The unemployment rate in the US rose to near a three-year high of 4.3%, from 4.1% in June.

Fed funds futures traders now see a 73% chance of a 50-bps rate cut at the Fed's September meeting, compared with Thursday's expectation of a 22% chance, according to the CME FedWatch tool.

Dealers said the RBI likely sold the greenback around 83.80 a dollar, which limited losses for the Indian unit. However, as foreign banks stepped in to purchase dollars on behalf of foreign portfolio investors, the rupee fell beyond the key level. Today, both the Nifty 50 and Sensex ended 2.7% lower.

"The FPI buying (of dollars) may go on for the next few days, till the market settles down and corrects," a dealer at a private bank said. 

Further, banks rushed to buy dollars on behalf of importers in fear that the domestic currency may depreciate further going ahead. Dealers said a sense of 'panic' and 'urgency' crept into importers' minds, and they bought the US unit aggressively after the rupee fell past 83.80 a dollar. Following this, the rupee hit a record low of 83.8450 a dollar.

"As soon as such volatility happens in the rupee, importers start hedging their positions. Importers and exporters were not hedging earlier but with today's movement and the geopolitical uncertainty arising, hedging activity should be back," Dilip Parmar, currency analyst at HDFC Securities, said. 

Dealers said the central bank also likely sold the greenback around 83.8450 a dollar, to prevent a sharp fall in the local unit. However, the RBI's greenback sales were not aggressive in nature, hinting at the apex bank's tolerance to a weaker exchange rate, they said. Some dealers said the RBI may have sold $1.5-$2.0 bln in the domestic spot market today. 

Further, dealers said the rupee did not take much cushion from a sharp fall in the dollar index. The dollar index fell to a near five-month low today following lower-than-expected US jobs data. At 1705 IST, the dollar index, which measures the strength in the greenback against a basket of six major currencies, was at 102.66, compared with 103.22 on Friday and 104.34 on Thursday. The index fell to a near five-month low of 102.41 today.

PREMIUMS

Premiums on the one-year dollar/rupee forward contract ended at their highest level in over 14-months as the US Treasury yields slumped after sharply lower-than-expected jobs data, prompting fear among investors that the US may be heading into a recession, dealers said. The benchmark 10-year US Treasury yields fell 19 basis points on Friday. 

Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries. With the Fed expected to cut rates by more than 25 bps as was previously expected, and India expected to delay a rate cut, the interest rate differential between the US and India is likely to rise, thus driving the dollar/rupee forward premiums higher.

Further, noting the depreciation in the rupee in the domestic spot market, importers bought dollars for forward delivery, which also aided the premiums, dealers said.

At 1530 IST, premiums on the one-year exact-period dollar/rupee contract were 175.48 paise, compared with 160.09 paise on Friday. On an annualised basis, the premiums were 2.09% compared with 1.91% on Friday. 

OUTLOOK

On Tuesday, the rupee will take cues from movement in the dollar index and crude oil prices. A further decline in global equities may also weigh on the Indian unit, dealers said. Traders will also keep a close tab on the evolving geopolitical developments in West Asia.

Dealers expect importers to buy dollars at every dip in the dollar/rupee level. "RBI probably protected the dollar/rupee, keeping it near 83.83-83.85 level for most of the time. As Dow futures are indicating a downside open, we expect rupee to open lower tomorrow (Tuesday) within a range of 83.80-84.00 with a close watch over RBI," said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.

Dealers expect the central bank to continue intervening through dollar sales, both in the offshore NDF and domestic spot market, to prevent a sharp fall in the rupee. 

During the day, the rupee is seen at 83.75-83.90 a dollar, with immediate key technical support pegged at 83.85 a dollar and long-term support at 84.00.

India Rupee - World FX: Yen surges on slump in dlr index, BoJ minutes

MUMBAI – The Japanese yen surged 2.8% against the US dollar after a slump in the dollar index, and also as the minutes of the Bank of Japan's latest monetary policy, released today, showed that the board members pondered upon an early rate hike, with two of the nine members calling for a rate hike at the policy meeting in June itself.

The dollar index slumped on widespread concern about the US heading into a possible recession. The index plummeted on Friday to close at 103.22 after settling at 104.34 on Thursday. The index, which measures the strength of the greenback against a basket of six major currencies, fell further today, and was 102.64 at 1448 IST. The dollar index plummeted after the US non-farm payrolls data for July came in softer-than-expected. 

The US Labor Department report on Friday showed that employers in the US added just 114,000 jobs in July, well below the 215,000 jobs per month added over the last 12 months. The unemployment rate in the US rose to near a three-year high of 4.3%, from 4.1% in June. After this data, fed funds futures traders see a 94.5% chance of a 50 basis point rate cut at the US Federal Open Market Committee's September meeting, up from an 11.4% chance seen a week ago. 

Further, the pound sterling remained down and fell 0.3% against the US currency after the Bank of England cut its bank rate by 25 basis points to 5.0% on Thursday.

The euro rose 0.4% against the greenback even as the HCOB's composite purchasing managers index fell to 50.2 in July, only slightly above the expectation of 50.1, and lower than the previous month's reading of 50.9. While the purchasing managers index fell on a monthly basis, it was the slump in the dollar index that provided support to the euro.

The Australian dollar was down 1% against the dollar, tracking a fall in its domestic equities. The S&P/ASX 200 fell 3.7% today, which weighed on the Australian currency. The latest data from China, which is the largest export destination for Australian goods, showed that Caixin global purchasing managers index rose to 52.1 in July from 51.2 in the month before. This supported the Australian currency.  (Sourabh Kumar)

India Rupee: At record low as importers, FPIs buy dlrs; RBI caps fall

MUMBAI – The rupee hit a fresh lifetime low of 83.8450 a dollar as banks persistently purchased dollars on behalf of importers and foreign portfolio investors, dealers said. However, some state-owned banks stepped in to sell the greenback, likely on behalf of the Reserve Bank of India, which contained losses for the Indian currency, they said. 

Dealers said since the rupee fell past key technical support levels today, importers aggressively purchased the greenback in fear that the Indian unit will depreciate further going ahead. "Earlier, importers were not buying heavily because they were relying on RBI, but since the 83.80 level was touched, they have been buying out of panic," a dealer at a large Indian corporate said. 

Further, foreign banks bought the US unit on behalf of foreign portfolio investors, as risk appetite was dampened after a sharply lower than expected US jobs data led to fears that the US could be heading for a recession, dealers said. 

The US Labor Department report on Friday showed that employers in the US added just 114,000 jobs in July, well below the 215,000 jobs per month added over the last 12 months. The unemployment rate in the US rose to near a three-year high of 4.3% from 4.1% in June. Following this, investors increased bets that the US Federal Reserves may deliver a 50-basis-point rate cut at its meeting in September against expectations of 25 bps earlier. 

73.5% of Fed fund futures traders expect a rate cut of 50 bps at the Fed's September meeting against 22% earlier, according to CME's FedWatch Tool. "FPIs are taking out money, and most of the impact on the rupee is because of that," a dealer at a private bank said. "We will have to see how the equities' situation evolves to know the trajectory for the rupee." At 1340 IST, both the Nifty 50 and the Sensex were down 2.6% each.

Meanwhile, state-owned banks sold the greenback at around 83.84 a dollar, likely for the RBI, which limited losses for the Indian unit, dealers said. However, the central bank's intervention through dollar sales was not aggressive in nature, they said. 

Further, dealers said the rupee did not take much respite from a sharp fall in the dollar index. The dollar index fell to a near five-month low today following lower-than-expected US jobs data. At 1340 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 102.73, compared with 103.22 on Friday and 104.34 on Thursday. The index fell to a near five-month low of 102.53 today.

For the rest of the day, the rupee is seen in a range of 83.75-83.90 against the dollar, dealers said. They peg immediate key technical support for the Indian currency at 83.85 a dollar and long term support at 84.00 a dollar. (Pratiksha)

India Rupee: Premiums at 1-yr high; US ylds plummet on weak jobs data

MUMBAI – Premiums on the one-year dollar/rupee forward contract surged and touched over a one-year high as US Treasury yields slumped after investors feared that the US may be heading into a recession as recent jobs data came in lower than expected, dealers said.

The benchmark 10-year US Treasury yields fell 19 basis points on Friday after the unemployment rate rose to 4.3% in July from the previous month's 4.1%, dealers said. Yields on the benchmark Treasury note fell sharply on investors' fears that the US may be heading towards a recession after the non-farm payrolls data came in softer than expected.

While some banks sold the greenback for forward delivery, dealers expect premiums on the one-year dollar/rupee forward contract to rise up to 2.10% before witnessing significant receiving interest. "Overnight also, UST (US Treasury yields) went down, and that is why premiums are so high and, I think, it will go till 2.10% today," a dealer with a state-owned bank said.

US non-farm payrolls increased 114,000 in July, way lower than the expectation of 175,000 jobs in a Reuters poll. It was also lower than June's figure of 179,000 jobs.

This made investors fear that the US economy may be heading for a recession. Fed funds futures traders now see a 79.5% chance of a 50-basis-point rate cut at the Federal Open Market Committee's September meeting, up from 11.5% seen a week ago. 

Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries. With the Fed expected to cut rates by more than 25 bps as was previously expected, and India expected to delay a rate cut, the interest rate differential between the US and India is likely to rise, thus driving the dollar/rupee forward premiums higher.

At 1011 IST, premiums on the one-year exact-period dollar/rupee contract were 171.06, compared to 160.09 on Friday. On an annualised basis, the premiums were 2.04% compared to 1.91% on Friday.  (Sourabh Kumar)

India Rupee: Hits record low as global shrs slump; RBI dlr sales aid

MUMBAI – The rupee hit a record low of 83.80 a dollar today as equities across the globe declined sharply on fears that the US could be heading for a recession, dealers said. However, dollar sales by banks, likely on behalf of the Reserve Bank of India, both in the domestic spot and offshore non-deliverable forwards market, limited the losses of the Indian unit, they said.

"They (RBI) are selling around 83.80 (a dollar). 83.80 may not break easily," a dealer at a private bank said.

Concerns about recession in the US were triggered after economic data showed the job market had slowed sharply last month, prompting investors to bet heavily that the US Federal Reserves may announce a 50-basis-point rate cut at its meeting in September against expectations of 25 bps earlier. 

The US Labor Department report on Friday showed that employers in the US added just 114,000 jobs in July, well below the 215,000 jobs per month added over the last 12 months. The unemployment rate in the US rose to near a three-year high of 4.3%, from 4.1% in June.

Fed funds futures traders now see a 73% chance of a 50-bps rate cut at the Fed's September meeting, compared to Thursday's expectation of 100% chance of a 25-bps rate, according to the CME FedWatch tool.

At 0940 IST, both the Nifty 50 and Sensex were down 2% each.

The dollar index fell to an over five-month low following the lower-than-expected job data, which supported the Indian unit, dealers said. At 0915 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 102.98, compared to 103.22 on Friday and 104.34 on Thursday. The index fell to an over five-month low of 102.95 today.

For the rest of the day, the rupee is seen in a range of 83.70-83.90 against the dollar, dealers said. They peg immediate key technical support for the Indian currency at 83.80 a dollar. (Pratiksha)

India Rupee - Asia FX: Up as dollar index slumps on weak US jobs data

MUMBAI – Asian currencies rose against the dollar today as the dollar index fell to an over five-month low after US economic data prompted investors to bet heavily that the US Federal Reserve may announce a 50 basis point rate cut at its meeting in September, against expectations of 25 bps earlier.

A report by the US Labor Department on Friday showed that employers in the US added just 114,000 jobs in July, well below the 215,000 jobs per month added over the last 12 months. The unemployment rate in the US rose to near a three-year high of 4.3%, from 4.1% in June.

After the data, 73.5% of the Fed fund futures traders expect a rate cut of 50 bps at the Fed's September meeting against 22% earlier, according to CME's FedWatch Tool.

At 0915 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 102.98, compared to 103.22 on Friday and 104.34 on Thursday. The index fell to an over five-month low of 102.95 today.

However, a slump in global and Asian equities limited gains for the Asian currencies. Equities across the globe declined sharply after risk appetite of investors was took a beating on fears that the US could be heading for a recession.

The Malaysian ringgit rose 2% against the dollar, the most amongst its peers. The Philippine peso was up 0.5% against the greenback, while both the Indonesian rupiah and Taiwan dollar were up 0.4% against the US unit. The South Korean won rose 0.1% against the dollar. (Pratiksha)

India Rupee: Expected range for rupee - Aug 5

MUMBAI – Following are the expected support and resistance levels for the rupee today, as forecast by leading banks and brokerages in an Informist poll:

(Sourabh Kumar)

End

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

Edited by Akul Nishant Akhoury

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