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Informist, Monday, Aug 12, 2024

By Pratiksha

MUMBAI – The Reserve Bank of India's persistent efforts to keep the rupee afloat notwithstanding, the rupee ended at a record closing low against the dollar today as importers continuously bought dollars, dealers said. The rupee fell to a lifetime low of 83.9800 a dollar during the last leg of the trade, just shy of its psychologically crucial level of 84 to a dollar. 

"The 84 (a dollar) figure may remain protected unless there is a big trigger," said Ritesh Bhusari, deputy treasury head, South Indian Bank. "There will be a gradual depreciation (in the rupee). The range has to break eventually."

After moving barely in a range of 4 paise throughout the day, the Indian currency settled at a record closing low of 83.9725 a dollar, as against 83.9550 a dollar on Friday. 

Other Asian currencies weakened 0.1-0.7% against the dollar today, with the Malaysian ringgit being the worst performer. This also pressured the Indian currency, dealers said. Emerging market units declined in the face of a strong dollar index ahead of the release of the key US producer and consumer price data, due Tuesday and Wednesday, respectively. 

At 1530 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 103.17, compared with 103.15 on Friday, and 103.24 on Thursday. The dollar index rose to a high of 103.24 during the day. 

Today, the Indian unit opened flat against the dollar as traders exercised caution ahead of the release of multiple economic data from the US and China, dealers said.

The US inflation print for July is expected to show some cooling, a trend that is likely to give the Fed more confidence to begin cutting interest rates, as per market participants. The odds of the US central bank slashing interest rates by 50 basis points at its September policy meeting are 46.5%, with a 25-bps cut seen as having a 53.5% probability, as per the CME FedWatch Tool.

Traders also await China's retail sales and industrial production data, due on Thursday. They will look for indications of continued underperformance of the world's second-largest economy and the need for a monetary stimulus. 

Shortly after opening, the Indian unit came under pressure as banks stepped in to buy dollars on behalf of importers, dealers said. Importers bought the greenback in fear that the Indian unit may depreciate further. The rupee fell to a record low thrice last week.

Since the rupee fell 0.2% against the dollar last week and tested consecutive record lows, importers are of the view that the RBI may now allow more depreciation in the rupee. "The demand (for dollars) may not be that much since the range was so thin. But the demand was constantly matched by supply (of dollars)," a dealer at a private bank said. 

As soon as the rupee moved to 83.97 a dollar, the RBI stepped in to sell the greenback to keep the local unit from falling to a record low, dealers said. The rupee traded at around 83.97 a dollar for a major part of the day. 

The central banks' active dollar sales are aimed at preventing the Indian currency from falling to the psychologically important level of 84 to a dollar, according to dealers. "It is only 2-3 paisa away from the figure (84 a dollar). It will, for sure, breach in the coming days," a dealer at a state-owned bank said. "The way they are managing the volatility, I am not even expecting sharp movement after 84. It will be a very gradual depreciation."

Some dealers said the RBI may have sold almost $1 bln in the domestic spot market today. The RBI today likely intervened via dollar sales in the dollar/rupee futures market as well, some dealers said.

Dealers said the RBI intervened around 83.98 a dollar as well. However, the intervention was not aggressive, they said. 

Meanwhile, crude oil prices rose almost 1%, rising for the fifth consecutive day today, as worries related to a potential recession in the US faded and due to the ongoing geopolitical tensions in West Asia. As India is the third-largest oil importer in the world, a rise in crude oil prices weighs heavily on the Indian rupee.

At 1530 IST, the October Brent crude contract on the Intercontinental Exchange was at $80.36 per bbl, compared with $79.66 per bbl on Friday and $79.16 per bbl on Thursday. If crude oil prices sustainably rise above $80 per bbl, dealers expect oil marketing companies to step up their dollar purchases, which may, in turn, weigh on the Indian rupee. 

Dealers expect exporters to remain absent from the market, and may only let go of their dollar holdings when the rupee sustainably falls below 84 per dollar.

FORWARDS

Premium on the one-year dollar/rupee forward contract ended slightly lower, tracking a rise in US Treasury yields, dealers said. Traders refrained from placing large bets ahead of India's CPI data due later today and the US inflation data due Wednesday, dealers said.

India's CPI inflation data for July will be released at 1730 IST. According to an Informist poll, India's CPI inflation is seen falling to 3.7% in July from 5.08% in June. US July inflation is expected to rise 0.2% on month but may remain unchanged from a month ago at 3.2% on year, as per a Reuters poll.

The one-year dollar/rupee forward contract had fallen to a low of 2.02% during the day. Following this, some importers purchased the greenback for forward delivery, noting the lower levels, which aided the premium, dealers said.

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 in September, and the RBI expected to delay rate cuts, the interest rate differential between the US and India is likely to widen. 

At 1530 IST, the premium on the one-year exact-period dollar/rupee contract was 170.83 paise, compared with 171.47 paise on Friday. On an annualised basis, the premium was 2.03% compared with 2.04% on Friday.

OUTLOOK

On Tuesday, the rupee will track movement in the dollar index and crude oil prices, dealers said. The RBI may intervene through dollar sales in the offshore non-deliverable forwards market if the rupee inches closer to 84 per dollar during opening at 0900 IST, dealers said. 

Traders will continue to monitor the evolving geopolitical developments in West Asia and their subsequent impact on crude oil prices. The RBI is also expected to continue intervening through dollar sales in the domestic spot market to prevent a sharp fall in the rupee. 

Dealers expect importers to continue buying dollars at every dip in the dollar/rupee level, which may keep the Indian unit under pressure.

"Rupee is expected to remain in the broad range of 83.85 to 84.05 tomorrow (Tuesday), with also a close watch on RBI," Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP, said.

During the day, the rupee is seen at 83.90-84.10 a dollar, with strong technical support pegged at 84.00.

India Rupee - World FX: Australia dlr up on sticky inflation concerns

MUMBAI – The Australian dollar was up 0.3% against the dollar as the deputy governor of the Reserve Bank of Australia, Andrew Hauser, said economic forecasts were subject to a wide range of uncertainties and inflation has been sticky. Hauser said there was a risk that unemployment could rise faster than expected, and that consumption could pick up more than the forecast increase in wealth.

The Japanese yen was down 0.5% against the dollar on a day when the country's financial markets were closed for Mountain Day.

The euro was up 0.1% against the dollar, despite a Bloomberg survey showing that the European Central Bank may cut rates by 25 basis points in each quarter till the end of 2025. Market participants were waiting for the release of the Apr-Jun GDP estimate, due to be released Tuesday.

The pound sterling was steady against the greenback as market participants awaited multiple economic data points from the UK to assess the rate trajectory in the country. Unemployment figures for July are set to be released Tuesday, with the country's inflation data due Wednesday.

The dollar index was also steady ahead of the release of crucial economic data from the US, such as the Producer Price Index due Tuesday, and inflation figures due Wednesday. US consumer prices are expected to have risen 3.2% on year in July, slightly lower than June's 3.3% rise. Sequentially, inflation is forecast at 0.2%.

The dollar index, which measures the strength of the greenback against a basket of six major currencies, was 103.18 at 1537 IST, after closing at 103.15 on Friday and 103.24 on Thursday.

In addition to the data, speeches by a few US Federal Reserve officials this week will also be watched. Federal Reserve Bank of St Louis President Alberto Musalem is scheduled to speak Thursday, while Federal Reserve Bank of Chicago President Austan Goolsbee will speak Friday.

Saturday, Michelle W. Bowman, a member of the Fed's board of governors, while acknowledging that inflation had come down these past few months, said it is still "uncomfortably above" the central bank's target of 2%. She said that while it is conducive to lower interest rates should the upcoming data signal easing of inflation, more patience is required, and any overreaction to a single data point must be avoided.  (Sourabh Kumar)

India Rupee: Premiums steady on caution before India, US CPI data

MUMBAI – Premium on the one-year dollar/rupee forward contract was steady against the dollar as market participants refrained from placing large bets ahead of India's CPI data due later today and the US inflation data due Wednesday, dealers said.

"India's CPI is today, and then we are waiting for the US data (US CPI), which could provide further direction as to how much the US economy is slowing," a dealer with a state-owned bank said. "Also there was some receiving (forward dollar sales) due to higher levels."

India's CPI inflation data will be released at 1730 IST. According to an Informist poll, India's headline CPI inflation is seen falling to 3.7% from 5.08% in June. If retail inflation moderates as projected, it will be the first time in nearly five years that it has fallen below the Reserve Bank of India's medium-term target of 4%. Some market participants even expect the CPI print to fall to as low as 3.4% in July, dealers said.

Meanwhile, the odds of a 50 basis point rate cut by the US Federal Reserve in September came down to about 49% today from 85% a week ago, with 100% odds of at least a 25 bps rate cut, according to the CME FedWatch tool. Odds of a 50 bps rate cut fell after data on Thursday showed that unemployment claims in the US fell more than expected for the week ended Aug 3.

After the one-year dollar/rupee forward contract fell to today's low of 2.02%, some importers purchased the greenback for forward delivery, pushing premiums slightly higher, dealers said. A fall in the benchmark 10-year US Treasury note on Friday also put upward pressure on premiums. Some banks also sold dollars for forward delivery due to the uncertainty around the quantum of rate cuts by the Fed in September, dealers said.

They said a fall in the dollar/rupee in the spot market may push premiums higher due to an increase in forward dollar purchases by importers. At 1347 IST, the premium on the one-year exact-period dollar/rupee contract was 170.33, compared with 171.47 on Friday. On an annualised basis, the premium was 2.03% compared with 2.04% on Friday.  (Sourabh Kumar)

India Rupee: In thin band; RBI's dlr sales offset importers' dlr buys

MUMBAI – The rupee moved in a narrow range against the dollar today as state-owned banks' dollar sales, likely for the Reserve Bank of India, offset the impact of importers' dollar purchases, dealers said. The rupee has moved in a range of only 3 paise so far today. 

"They (RBI) are selling (dollars) but mildly. There is ample demand (of dollars) in the market, but still a demand-supply mismatch," a dealer at a big state-owned bank said. 

Dealers said the central bank likely sold dollars around 83.96 a dollar to keep the rupee from hitting a record low. The rupee hit a record low of 83.9725 a dollar on Wednesday. RBI's likely dollar sales are also seen aimed at preventing the Indian currency from falling to the psychologically-crucial level of 84-per-dollar, they said. 

Dealers expect the RBI to continue selling the greenback throughout the day, and expect the local unit to trade in a tight range of 83.90-84.00 a dollar today. "The 84 (a dollar) level has to breach eventually. A 2-3 paisa movement does not make that much of a difference," a dealer at a private bank said. "Of course, they (RBI) will try to avoid it as much as they can, but it's a matter of time." 

On the other hand, banks purchased dollars on behalf of importers on the expectation that the Indian unit may depreciate further going ahead, dealers said. Looking at the rupee's 0.2% fall against the dollar last week and the successive record lows, importers are of the view that the RBI may now allow more depreciation in the rupee. The rupee fell to a record low thrice last week.

Dealers peg key technical support for the Indian currency at 84.00 a dollar.  (Pratiksha)

India Rupee: Technical Levels for rupee - Aug 12

MUMBAI – At 0900 IST, the rupee was at 83.9500 a dollar, against 83.9550 from the previous close. At 1050 IST, the rupee was at 83.9575 per dollar. Following are key support and resistance levels for the rupee as provided by leading banks and brokerages:

(Gowri Lakshmi)

India Rupee - Asia FX: Most down as dollar index firm before US economic data

MUMBAI – Most Asian currencies were down against the dollar as the dollar index held firm today, with investors waiting for multiple economic data from the US, due this week. The July US inflation data is due on Wednesday, and speeches by a few US Federal Reserve officials are scheduled by the end of the week.

Michelle W. Bowman, member of the board of governors of the Federal Reserve, while acknowledging that inflation has come down in the last few months, said it is still "uncomfortably above" the central bank's target of 2%. She said that while it is conducive to lower interest rates should the upcoming data signal ease in inflation, more patience is required, and any over-reaction to a single data point must be avoided. 

After the non-farm payrolls data came in weaker than expected on Aug 2, investors were quick to suggest that the US may be heading into a recession. This also raised the odds of a 50-basis-point rate cut by the Fed in September amongst market participants. Currently, the chances of a 50-bps rate cut in September, as measured by the CME FedWatch tool, are 46.5% compared to 74% a week ago. 

The Malaysian ringgit was down 0.6% against the dollar. This was despite a Wall Street Journal poll seeing its economy growing 5.9% on year in Apr-Jun, compared to the previous quarter's growth of 4.2%. 

The Taiwan dollar fell 0.1%, and the Philippines peso declined 0.2% against the greenback. The South Korean won was down 0.3% against the dollar.  (Sourabh Kumar)

India Rupee: Steady on caution ahead of US, China economic data this week

MUMBAI – The rupee was steady against the dollar today as traders exercised caution ahead of the release of multiple economic data from the US and China, dealers said. The key data points under market participants' watch are the US producer and consumer price data, due Tuesday and Wednesday, respectively, for further cues on the Federal Reserve's interest rate trajectory. 

Market participants expect the July US inflation print to show some cooling, a trend that is likely to give the Fed more confidence to begin cutting interest rates. The odds of the US central bank slashing interest rates by 50 basis points at its September policy meeting are 46.5%, with a 25-bps cut now seen as having a 53.5% probability, as per the CME FedWatch Tool.

Traders also await economic data from China. Retail sales and industrial production data for the world's second-largest economy are due on Thursday. Market participants will look for cues about continued underperformance of the economy and the need for monetary stimulus. 

"There is data this week, but I am not sure how much cues it (the rupee) will take from it. Since last week's data was a big event, we are not sure if the US CPI will be like that. We will have to wait and see," a dealer at a state-owned bank said. 

Dealers said importers may continue to buy dollars on every fall in the dollar/rupee, which may weigh on the Indian currency. Importers may buy the greenback in fear that the Indian unit may depreciate further going ahead. The rupee fell to a record low of 83.9725 a dollar on Wednesday. 

"The 83.90-84.00 range should persist. Importers are buying (dollars) and not letting the rupee rise beyond 83.90 and RBI has been protecting 84. So that trend will continue today as well," a dealer at a private bank said. 

A fall in domestic share indices weighed on the Indian unit, dealers said. At 0940 IST, both the Nifty 50 and Sensex were down 0.4% each. 

Traders expect the Reserve Bank of India to intervene through dollar sales if the rupee inches closer to the psychologically-crucial level of 84-per-dollar. 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 key technical support for the Indian currency at 84.00 a dollar.  (Pratiksha)

India Rupee: Expected range for rupee - Aug 12

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 Saji George Titus

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