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Informist, Tuesday, Aug 6, 2024

By Pratiksha

MUMBAI - The rupee ended at a record closing low against the dollar today due to continuous dollar purchases on behalf of importers and foreign portfolio investors, dealers said. This was despite the Reserve Bank of India's active efforts, via dollar sales, to keep the Indian currency afloat, they said. 

"This volatility and outflow from equities has been a big fallout for the rupee. RBI has been intervening, but they are letting it (rupee) depreciate as well. It is good for our exports," said Sajal Gupta, executive director and head of forex and commodities at Nuvama Institutional Desk. 

After depreciating 0.1% against the greenback and falling to a lifetime low of 83.9650 a dollar, the Indian currency ended at 83.9525 a dollar. The rupee moved in a range of 12 paise throughout the day. 

Even as the Indian unit was quoting around 84-a-dollar levels in the offshore non-deliverable forwards market, an hour before the opening of the domestic spot market at 0900 IST, it started the day steady at 83.8450 a dollar as the RBI likely intervened aggressively through dollar sales in the offshore NDF market, dealers said.

The rupee was under pressure today as risk appetite among investors remained weak owing to worries of a potential recession in the US, dealers said. Concerns about recession in the US were fuelled after the US jobs data was sharply lower than expected last week. This led to market participants aggressively repricing their rate cut expectations by the US Federal Reserve. Market participants now expect a 50-basis-point rate cut in the US in September, instead of 25 bps.

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 a near three-year high of 4.3% from 4.1% in June. Following this, Fed funds futures traders now see a 73.5% chance of a 50-bps rate cut at the Fed's September meeting, compared with Thursday's expectation of 22% chance, according to the CME FedWatch tool.

Shortly after the market opened, the domestic currency fell below the crucial support of 83.90 a dollar, as banks rushed to buy the greenback on behalf of importers, dealers said. Importers' aggressive demand for dollars was owing to expectation that the rupee may depreciate further going ahead.

"I think the market at this point feels that 84 (a dollar) is imminent and wants to make the most of the levels before that," a dealer at a state-owned bank said. "We are seeing a lot of demand (for dollars)."

As the rupee hit the 83.90 a dollar level, some banks' stop losses were triggered on short-dollar bets, leading to a further fall in the Indian currency. However, a sharp move in the exchange rate was averted as the central bank stepped in to sell dollars around 83.90 a dollar, dealers said. 

Further, banks also bought the greenback on behalf of FPIs, who looked to pull out money from the domestic equities, as risk sentiment remained dampened. This also weighed on the Indian unit and dragged it to a lifetime low of 83.9650 a dollar, they said. 

The dollar index regained some ground during European trade, after falling to a near seven-month low on Monday, which also weighed on the Indian unit, dealers said. The dollar index recovered, tracking a fall in the Japanese yen. The yen retreated from the seven-month high it hit on Monday, as the unwinding of carry trades slowed. The yen rose sharply on Monday after traders aggressively unwound carry trades. A carry trade is when investors borrow money from economies with low interest rates to fund investments in higher-yielding assets. 

At 1620 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 103.14, compared with 102.67 on Monday and 103.22 on Friday. The index fell to a near seven-month low of 102.16 on Monday.

Dealers said that while the RBI intervened in the market through dollar sales for most part of the day, its intervention was not aggressive in nature. Some dealers said the central bank may have sold almost $1 bln in the domestic spot market today. "I think they (RBI) are letting the rupee to arrive at a fair value finally," a dealer at a foreign bank said.

Most dealers expect strong support by the central bank around the psychologically-crucial 84-per-dollar level. However, a section of traders said that looking at the successive record lows the rupee has fallen to in the last few days, it may easily fall to 84 a dollar in the next few days. 

FORWARDS

Premium on the one-year dollar/rupee forward contract fell today due to an overnight rise in US Treasury yields, dealers said. US Treasury yields rose as risk appetite amongst investors was weak due to concerns of recession in the US.

Some exporters also stepped in to sell dollars for forward delivery noting relatively higher levels, which weighed on the premiums, dealers said. The one-year dollar/rupee forward premium rose to 2.09% on Monday, its highest level in over 14 months. 

"There is obviously some profit booking around these levels," a dealer at a private bank said. "I also expect the RBI to receive around these levels since they have given a lot of dollars in spot."
 

Market participants are now waiting for the RBI's monetary policy decision on Thursday for any cues related to its rate trajectory. All 30 economists, treasurers, and fund managers polled by Informist expect the six-member Monetary Policy Committee to leave the repo rate unchanged at 6.50%.

Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries. With the US Federal Reserve expected to cut policy rates by more than 25 basis points at its meeting in September, and the RBI expected to delay rate cuts, the interest rate differential between the US and India is likely to rise, thus driving the dollar/rupee forward premiums higher.

Fed funds futures traders now see a 78% chance of a 50-basis-point rate cut at the Federal Open Market Committee's meeting in September, against 23% seen a week ago.

At 1530 IST, premium on the one-year exact-period dollar/rupee contract was 172.09 paise, compared to 175.48 paise on Monday. On an annualised basis, the premium was 2.05% compared to 2.09% on Monday.

OUTLOOK

On Wednesday, the rupee may open lower as weak risk appetite among investors may lead to FPI outflows, dealers said. A further recovery in the dollar index may also weigh on the Indian unit, they said.

Traders will keep a close watch on the evolving geopolitical developments in West Asia and its subsequent impact on crude oil prices. Dealers expect importers to continue buying dollars at every dip in the dollar/rupee level, which may keep the Indian unit under pressure. 

The central bank is also expected to continue intervening through dollar sales, both in the offshore NDF and domestic spot market, to prevent a sharp fall in the rupee. "At this point, 84.20-84.50 (a dollar) should not look bad. It will bring in more foreign money," said Gupta. 

During the day, the rupee is seen at 83.80-84.10 a dollar, with strong technical support pegged at 84.00.

India Rupee - World FX: Dollar index recovers from near 7-mo low

MUMBAI – The dollar index recovered from a near seven-month low it touched on Monday. The index recovered after the data showed that the US non-manufacturing purchasing managers index rose to 51.4 in July, up from 48.8 in June. A reading above 50 suggests an expansion in the sector, while a reading below it shows contraction. 

At 1645 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 103.16, compared with 102.67 on Monday and 103.22 on Friday. The index fell to a near seven-month low of 102.16 on Monday.

The index also received support from a falling euro. The euro fell 0.4% against the US unit as retail sales in the eurozone fell 0.3% on year in June, contrary to the forecast of a 0.1% rise. On a monthly basis, retail sales for the bloc fell 0.3% as compared to the expectation of a 0.1% fall. This suggested that the euro economy may be cooling down, thus raising the case for the European Central Bank to cut rates going ahead. The euro accounts for a 57.6% weightage in the dollar index.

Due to a recovery in the dollar index, the Japanese yen also fell 0.6% against the greenback. The yen holds a 13.6% weightage in the index. The Japanese unit also fell as the unwinding of yen carry trades slowed. Unwinding of carry trades started when the Japanese unit rose sharply against the dollar as investors anticipated a further rate hike by the Bank of Japan, and as the US currency tumbled after Friday's data showed that the unemployment rate in July rose to 4.3% from the previous month's 4.1%.

The Australian dollar fell 0.2% against the US currency after the Reserve Bank of Australia kept the cash rate unchanged at 4.35%. Further, the central bank ruled out any rate cut in the near-term. This limited losses for the Australian unit.  (Sourabh Kumar)

India Rupee: Forward premiums fall on overnight rise in US yields

MUMBAI – Premium on the one-year dollar/rupee forward contract fell as yield on the 10-year US Treasury note rose overnight, dealers said. US Treasury yields rose as risk appetite amongst investors remained low, due to concerns of recession in the US.

"Largely it is the overnight rise in UST (US Treasury yields) which is why our premiums have come down slightly, in addition to some receiving interest we saw in the morning," a dealer with a private bank said. At 1257 IST, yield on the 10-year US Treasury note was 3.86%, up from Monday's close of 3.78%. The yield was 3.80% on Friday.

While a few exporters sold dollars for forward delivery, dealers said majority of the market participants are waiting for premiums to go higher before placing large bets.

Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries. With the US Federal Reserve expected to cut policy rates by more than 25 basis points at its meeting in September, and no clarity about India cutting rates yet, the interest rate differential between the US and India is likely to rise, thus driving the dollar/rupee forward premiums higher.

Market participants are waiting for the Reserve Bank of India's monetary policy decision on Friday for any cues related to its rate trajectory. The RBI's rate-setting panel is expected to keep the repo rate and the policy stance unchanged for the ninth consecutive meeting. 

After data on Friday showed that the unemployment rate in the US had risen to 4.3% in July from 4.1% in June, investors became concerned that the US Fed may be behind the curve in cutting rates. Fed funds futures traders now see a 78% chance of a 50-basis-point rate cut at the Federal Open Market Committee's meeting in September, against 13% seen a week ago.

The one-year dollar/rupee forward premiums may fall further today as exporters could sell dollars for forward delivery to take advantage of higher forward premiums. However, further softer economic data from the US may strengthen bets for the Fed to cut rates by 50 bps in September, and that could keep the forward premiums broadly elevated, they said.

At 1414 IST, premium on the one-year exact-period dollar/rupee contract was 171.06 paise, compared to 175.48 paise on Monday. On an annualised basis, the premium was 2.04% compared to 2.09% on Monday.  (Sourabh Kumar)

India Rupee: Technical Levels for rupee - Aug 6

MUMBAI – At 0900 IST, the rupee was at 83.8450 a dollar, flat vs previous close. At 1049 IST, the rupee was at 83.8700 per dollar.

Following are key support and resistance levels for the rupee as provided by leading banks and brokerages:

(Sourabh Kumar)

India Rupee - Asia FX:Most dn; risk appetite hit on US recession fear

MUMBAI – Most Asian currencies fell against the dollar today as risk appetite among investors was dampened as concerns related to a potential recession in the US loom large. Worries over recession in the US were triggered after the US jobs data last week came in sharply lower than expectations, leading to hopes of a sharper rate cut by the US Federal Reserve in September.   

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 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.

San Francisco Federal Reserve Bank President Mary Daly on Monday said she is "more confident" that the US inflation is headed toward the Fed's 2% goal. "It's clear inflation is coming down closer to our target. It's clear that the labor market is slowing and it's to a point where we have to balance those goals," Daly said at an event in Hawaii, according to reports. 

Ongoing geopolitical tensions in West Asia have also hit investors' risk appetite. Israel and the US are bracing for significant escalation after Iran and its allies Hamas and Hezbollah pledged to retaliate against Israel for the killings last week of the Hamas leader and a Hezbollah military commander, according to reports. 

Meanwhile, a recovery in the Asian share indices today after Monday's rout limited the losses in Asian units. The Malaysian ringgt fell 0.9% against the dollar, the most amongst its Asian peers. Both the South Korean won and Taiwan dollar fell 0.2% against the greenback. The Phillipine peso was down 0.1% against the US unit. Bucking the trend, the Thai baht was up 0.1% against the dollar.  (Pratiksha) 

India Rupee: Hits record low; RBI's likely dlr sales in NDF, spot aid

MUMBAI – The rupee hit a record low of 83.8575 a dollar today as risk appetite among investors remained weak owing to worries of a potential recession in the US, dealers said. However, the Reserve Bank of India's likely dollar sales, both in the domestic spot and offshore non-deliverable forwards market, limited the losses of the Indian unit, they said.

The RBI likely intervened aggressively in the offshore NDF market as the Indian currency was trading around 84.04-a-dollar levels an hour before the opening of the domestic spot market at 0900 IST, dealers said.

"There was a sharp movement in the NDF market, which was mostly expected," a dealer at a state-owned bank said. "We may see them (the RBI) there around 83.85, unless there is a huge demand (of dollars) or something happens to equities."

Concerns about recession in the US were triggered after the US jobs data was sharply lower than expected last week. This led to market participants aggressively repricing their rate cut expectations by the US Federal Reserve. Market participants now expect a 50-basis-point rate cut in the US in September, instead of 25 bps.

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 a near three-year high of 4.3%, from 4.1% in June.

Following this, Fed funds futures traders now see a 73.5% chance of a 50-bps rate cut at the Fed's September meeting, compared with Thursday's expectation of 22% chance, according to the CME FedWatch tool.

A sharp rise in domestic equities today also supported the Indian unit, dealers said. At 0940 IST, both the Nifty 50 and Sensex were up 1.2% each.

Meanwhile, the dollar index recovered slightly from the near seven-month low it hit on Monday, which also weighed on the Indian unit, dealers said. The dollar index rebounded tracking a fall in the Japanese yen.

At 0935 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 102.85, compared with 102.67 on Monday and 103.22 on Friday. The index fell to a near seven-month low of 102.16 on Monday.

For the rest of the day, the rupee is seen in a range of 83.80-84.00 against the dollar, dealers said. They peg immediate key technical support for the Indian currency at 83.90 a dollar. (Pratiksha)

India Rupee: Expected range for rupee - Aug 6

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 Vandana Hingorani

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