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Informist, Wednesday, Sep 11, 2024

By Pratiksha

NEW DELHI – After trading in a tight band of 5 paise throughout the day, the rupee ended flat against the dollar today as the impact of dollar sales by foreign banks for foreign fund inflows was counteracted by dollar purchases by oil marketing companies, dealers said. Moreover, dollar sales by state-owned banks, likely on behalf of the Reserve Bank of India, ensured that the Indian unit did not test the psychologically-crucial level of 84-per-dollar, they said.

"There were decent inflows today and the dollar index has also come down, so all of that supported," said a dealer at a state-owned bank. "But this small range (of rupee) has left no incentives for us to trade."

The Indian currency settled at 83.9775 a dollar, not too far from its lifetime low of 83.9900 a dollar, against Tuesday's closing of 83.9750 a dollar. Other Asian currencies rose 0.1-0.8% against the dollar, tracking a fall in the dollar index. Along with the Thai baht, the Indian unit was the worst performing emerging market currency today.

The domestic unit opened flat against the dollar as traders exercised caution ahead of the release of US inflation data for August later today, dealers said. Market participants are waiting for the key economic data for further cues on the timing, size and pace of rate cuts by the US Federal Reserve.

The US CPI is expected to have risen 0.2% on month in August, according to a Reuters poll, unchanged from the previous month. On a year-on-year basis, it is seen rising 2.6%, down from a 2.9% rise in July. Some dealers said if the US CPI print reinforces expectations of a larger rate cut by the Fed next week, the Indian unit might rise to 83.85-83.90 a dollar.

"If the US CPI comes very soft, we may see quite a fall in the dollar index. But the question is how much it will impact us? That remains to be seen," said a dealer at a foreign bank.

While the US Fed is widely expected to ease rates on Sep 18, traders are still divided on the size of the cut. Currently, the odds of the US central bank slashing interest rates by 50 basis points this month are 31%, while the odds of a 25-bps rate cut are seen at 69%, as per the CME FedWatch Tool.

Shortly after opening, the Indian currency rose to the day's high of 83.9300 a dollar as foreign banks sold dollars on behalf of foreign investors looking to invest in the ongoing initial public offerings of domestic companies. The initial public offerings of Bajaj Housing Finance Ltd, Tolins Tyres Ltd, and Kross Ltd opened for public subscription on Monday and will close today. The initial public offering of PN Gadgil Jewellers Ltd opened for subscription on Tuesday and will close on Thursday.

Meanwhile, state-owned banks bought the greenback on behalf of oil importers, noting a drop in crude oil prices on Tuesday, dealers said. However, the dollar purchases were not aggressive in nature, they said.

"The Bajaj (Housing Finance) IPO inflows were there but were absorbed by oil bids (buying of dollars by oil marketing companies) after that," said a dealer at a private bank.

Crude oil prices recovered slightly today. On Tuesday, prices had fallen below $70 a barrel for the first time since December 2021, after the Organization of the Petroleum Exporting Countries and allies revised downward their demand outlook for 2024 and 2025. At 1530 IST, the November Brent crude contract on the Intercontinental Exchange was at $70.55 per bbl, compared with the previous close of $69.19 per bbl. Prices were at $71.84 per bbl on Monday.

Dealers said the current dollar/rupee levels are not lucrative for importers and most of them are on the sidelines for the same reason. Once the rupee appreciates above 83.90-83.85 a dollar, importers may come back. 

Dealers said the RBI likely intervened through dollar sales around 83.97 a dollar, in order to prevent the local unit from hitting the 84-per-dollar level. Since last month, the central bank has shown unwavering commitment towards protecting the key level of the rupee.

"The Mint Road has left nothing for us to do in the market. They are the sole big players," said a senior treasury official at a big state-owned bank. "The rupee is stuck at these levels and there is nothing we can do about it. The market has become complacent now."

Most dealers don't see the 84-per-dollar level breaking anytime soon, and even if the RBI allows the key level to break, traders don't expect a knee-jerk reaction in the currency market. Some dealers see the rupee falling to 84-20-84.30 a dollar if this crucial level is breached.

The dollar index fell ahead of the US inflation data today. However, the Indian unit took little comfort from the same, dealers said. At 1530 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 101.35, compared with a previous close of 101.66 on Tuesday and 101.61 on Monday.

Market participants also assessed comments by US Democratic Party candidate Kamala Harris and Republican Party challenger Donald Trump at a debate held late on Tuesday to speculate on the outcome of the US presidential election on Nov 5. Market participants are of the view that the debate has increased the chances of Harris defeating Trump in the election. They believe that if Trump came to power, it would mean lower corporate taxes, stricter trade relations, leading to higher stock prices and bond yields, strengthening the dollar.

FORWARDS

Premium on the one-year dollar/rupee forward contract ended at an over 16-month-high, tracking a sharp fall in the benchmark US Treasury yield, dealers said. Yield on the benchmark 10-year US Treasury note fell ahead of the US CPI data. Premiums on a currency pair's forwards reflect the interest rate differential between the two countries.

The one-year dollar/rupee forward premium rose to 2.26% during the day, the highest since May 8, 2023. Taking advantage of a relatively higher dollar/rupee forward premium, a few banks sold the greenback for forward delivery, dealers said. This capped the gains in the one-year dollar/rupee forward premium.

"Whatever is not happening in the spot is happening in the forwards. The link between India and the US is still reflected here," said a dealer at a state-owned bank. "But I feel the market is overpricing the rate cuts now, which is why the levels are rising so much. We may see a correction after 2.30%."

With the Fed likely to go for a rate cut, and no sight yet of a rate cut by the RBI, as expected by the market, the interest rate differential between the US and India is likely to rise, pushing dollar/rupee forward premiums higher.

At 1530 IST, the premium on the one-year exact-period dollar/rupee contract was 190.49 paise, against 186.43 paise on Tuesday. On an annualised basis, the premium was 2.26%, up from Tuesday's close of 2.22%.

OUTLOOK

On Thursday, the rupee will take cues from movement of the dollar index after the US inflation data for August, dealers said. The local unit may also take cues from movement of crude oil prices, they said.

Dealers expect the RBI to continue to keep the Indian currency from falling beyond the key level of 84-per-dollar through its dollar sales interventions. They expect the Indian unit to continue to move in a narrow range against the greenback.

"All the factors are in favour of the rupee currently, but maybe the fact that the rupee is overvalued is leading to the depreciation bias," said a dealer at a private bank. "Until that corrects, I think the depreciation pressure will remain."

During the day, the rupee is seen in a range of 83.90-83.99 a dollar, with strong technical support pegged at 84.00.

India Rupee - World FX: Yen up post BoJ policymaker Nakagawa's remarks

MUMBAI – The Japanese yen strengthened 0.8% against the US dollar after Bank of Japan's policymaker Junko Nakagawa said today that the Japanese central bank may raise rates if inflation moves along expected lines. The Bank of Japan is set to decide on its benchmark, overnight call rate, on Sep 20.

Nakagawa's remarks echoed last week's speech by Hajime Takata, a member of the policy board of the Bank of Japan, who said that the Japanese central bank must remain on course to increase its rates.

A sharp rise in the far-east nation's currency weighed on the dollar index. The yen constitutes 13.6% of the index. As the Japanese currency rose, the dollar index fell, and was at 101.40 at 1536 IST, after closing at 101.66 on Tuesday and 101.61 on Monday. The index, which measures the strength of the greenback against a basket of six major currencies, fell to a low of 101.27 earlier today.

A falling dollar index pushed the euro higher, which rose 0.3% against the greenback. The rise in the euro, however, was limited as the European Central Bank is likely to cut its deposit rate by 25 basis points on Thursday.

The pound sterling was up 0.1% against the greenback, largely due to a fall in the dollar index. The rise was, however, capped as data showed that the UK economy stagnated for a second consecutive month in July. Economists in a Reuters poll had projected its GDP to rise 0.2%.

The Australian dollar was up 0.1% against the US unit, as robust employment growth in the country has kept its central bank from cutting rates this year. The Canadian dollar was 0.2% higher against the US dollar, as Bank of Canada Governor Tiff Macklem said global trade disruptions could prove difficult for inflation to reach the central bank's target of 2%.

Market participants now await the release of inflation data from the US. The US CPI is expected to rise 0.2% on month in August, unchanged from the previous month, as per a poll by Reuters. On a year-on-year basis, inflation was seen rising 2.6% last month, down from 2.9% in July.  (Sourabh Kumar)

India Rupee: Premium at over 16-mo high as US ylds fall before US CPI

MUMBAI – Premium on the one-year dollar/rupee forward contract rose to an over 16-month-high, tracking a sharp fall in the benchmark US Treasury yields, dealers said. Yields on the benchmark 10-year US Treasury note fell ahead of the release of the US CPI data, due later today.

"Premiums are higher because UST (US Treasury yields) fell, and it was falling today as well," a dealer with a state-owned bank said. "I expect premiums (on one-year dollar/rupee) to keep rising, but the exact level should be known only after the release of US CPI."

The US CPI is expected to rise 0.2% on month in August, unchanged from the previous month, as per a poll by Reuters. On a year-on-year basis, inflation was seen rising at 2.6% last month, down from 2.9% in July.

Yields on the benchmark 10-year US Treasury note fell 5 basis points to close at 3.65% on Tuesday. It fell further overnight, and was at around 3.62% in early European trade today. The fall in US Treasury yields provided an upward push to the one-year dollar/rupee forward premium, which, on an annualised basis, hit 2.26%, the highest since May 8, 2023. Premiums on a currency pair's forwards reflect the interest rate differential between the two countries. 

Taking advantage of a relatively higher dollar/rupee forward premium, a few banks today sold the greenback for forward delivery, dealers said. This capped the gains in the one-year dollar/rupee forward premium. 

Dealers said market participants would keep an eye on the European Central Bank's rate decision on Thursday, when the central bank is expected to cut its deposit rate by 25 bps to 3.50%. Further, the two-day Federal Open Market Committee meeting starting Tuesday is a major event this month. Dealers expect dollar/rupee forward premiums to continue rising, now that the Fed is highly anticipated to cut rates.

As of today, the odds of a 25 bps rate cut at next week's Fed meeting were 65%, with chances of a 50 bps cut seen at 35%, as per the CME FedWatch tool.

With the Fed likely to go for a rate cut, and no sight yet of a rate cut by the Reserve Bank of India, as expected by the market, the interest rate differential between the US and India is likely to rise, pushing dollar/rupee forward premiums higher.  

At 1336 IST, the premium on the one-year exact-period dollar/rupee contract was 190.99 paise, against 186.43 paise on Tuesday. On an annualised basis, the premium was 2.26%, up from Tuesday's close of 2.22%.  (Sourabh Kumar)

India Rupee: Remains in thin band; IPO-linked FX inflows lend support

NEW DELHI – The rupee remained in a narrow range against the dollar as foreign banks' dollar sales for foreign fund inflows offset the impact of banks' dollar purchases on behalf of oil marketing companies, dealers said. The Indian unit has moved in a range of only 4 paise so far today. 

Dealers said foreign fund inflows were on account of overseas investment in the ongoing initial public offerings of domestic companies. Bajaj Housing Finance Ltd, Tolins Tyres Ltd, and Kross Ltd's initial public offerings opened for public subscription on Monday and will close today. The initial public offering of PN Gadgil Jewellers Ltd opened for subscription on Tuesday and will close on Thursday. 

Meanwhile, state-owned banks bought the greenback on behalf of oil importers, noting a drop in crude oil prices on Tuesday, dealers said. However, the dollar purchases were not aggressive in nature, they said. 

While crude oil prices recovered slightly today, on Tuesday, it fell below $70 a barrel for the first time since December 2021, after the Organization of the Petroleum Exporting Countries and allies revised their demand outlook for 2024 and 2025 downward. 

At 1350, the November Brent crude contract on the Intercontinental Exchange was at $70.20 per barrel, compared with the previous close of $69.19 per bbl. Prices were at $71.84 on Monday. 

Some dealers speculated that the Reserve Bank of India may have possibly sold dollars around 83.97 a dollar earlier during the day, to prevent the Indian unit from hitting the psychologically-significant level of 84-per-dollar. 

"Initially, they (RBI) sold (dollars) around 83.97, but after that, foreign banks started selling," a dealer at a private bank said. "I think these IPO flows should keep supporting (the rupee) this week."

A fall in the dollar index ahead of the US inflation data, due later today, also gave support to the Indian unit, dealers said. At 1350, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 101.42, compared with a previous close of 101.66 on Tuesday and 101.61 on Monday.

For the rest of the day, the rupee is seen at 83.90-83.99 against the dollar, dealers said. They peg immediate technical support for the Indian currency at 84.00 a dollar. (Pratiksha)

India Rupee: Technical Levels for rupee - Sep 11

MUMBAI – At 0900 IST, the rupee was at 83.9650 a dollar, against the previous close of 83.9750. At 1115 IST, the rupee was at 83.9375 per dollar. The following are key support and resistance levels for the rupee as provided by leading banks and brokerages:

(Sourabh Kumar)

India Rupee - Asia FX: Most up as dollar index eases before US CPI

MUMBAI – Most Asian currencies rose against the dollar as the dollar index eased ahead of the release of the US CPI data later today. The index, which measures the strength in the greenback against a basket of six major currencies, was 101.42 at 0945 IST, from Tuesday's close of 101.66. On Monday, the index closed at 101.61.

The dollar index also came under pressure from a strengthening yen, as investors' focus shifted to the Bank of Japan's rate decision on Sep 20. The Japanese yen carries a weight of 13.6% on the dollar index. Earlier today, Bank of Japan policymaker Junko Nakagawa said that the Bank of Japan may raise rates if inflation moves along expected lines.

Market participants awaited the release of US inflation figures to gauge the health of the world's largest economy. The headline CPI in the US is expected to rise 0.2% on month in August, unchanged from the previous month, as per a poll by Reuters. On a yearly basis, inflation was seen rising 2.6% last month, down from a 2.9% increase in July.

The South Korean won rose 0.3% against the greenback as the country's unemployment rate in August fell to 2.4%, the lowest since June 1999, according to Statistics Korea. It was down from July's figure of 2.5%. The Indonesian rupiah was 0.3% higher against the dollar.

The Philippines peso strengthened 0.5% against the dollar and the Taiwan dollar was up 0.2% against the dollar. Market participants await the rate decision by the country's central bank on Sep 19. The Thai baht rose 0.1% against the dollar.

The Malaysian ringgit was up 0.1% against the dollar as the country's central bank deputy governor on Bloomberg Television Monday indicated that rates are likely to remain unchanged this year, even as, globally, central banks were mulling easing their policies. He said the economy was on track to grow near 5% in 2024, with inflation being contained below 3%.  (Sourabh Kumar)

India Rupee: Steady as traders cautious ahead of US inflation data

NEW DELHI – The rupee was steady against the dollar as traders exercised caution ahead of the release of US inflation data for August later today, dealers said. Currency traders await the key economic data for further cues on the timing, size and pace of rate cuts by the US Federal Reserve.

The US CPI is expected to have risen 0.2% on month in August, according to a Reuters poll, unchanged from the previous month. However, on a year-on-year basis, it is seen gaining just 2.6%, down from a 2.9% rise in July. "There are chances there will be no impact on the rupee (of the US CPI print). It (rupee) has been disconnected from the dollar movement lately," said a dealer at a state-owned bank. 

Some dealers said if the US CPI print reinforces expectations of a larger rate cut by the Fed next week, the Indian unit might rise to 83.85-83.90 a dollar. While the US central bank is widely expected to ease rates on Sep 18, traders are still divided on the size of the cut. Currently, the odds of the US central bank slashing interest rates by 50 basis points this month are 33%, while the odds of a 25-bps rate cut are seen at 67%, as per the CME FedWatch Tool.

Traders are also assessing comments by US Democrat candidate Kamala Harris and Republican challenger Donald Trump at the presidential debate held late on Tuesday to speculate on the outcome of the US presidential election on Nov 5. During the debate, Harris attacked Trump's intention to impose high tariffs on foreign goods - a proposal she has compared to a sales tax on the middle class. Trump, on the other hand, criticised Harris for the persistent inflation during President Joe Biden's tenure, reports said. Investors expect that Trump coming to power would mean lower corporate taxes, stricter trade relations, leading to higher stock prices and bond yields, strengthening the dollar.

On the domestic front, dealers expect the Reserve Bank of India to continue intervening through dollar sales around 83.97-83.98 a dollar, to prevent the Indian currency from falling to the psychologically-important level of 84-per-dollar.

For the rest of the day, the rupee is seen at 83.90-83.99 against the dollar, dealers said. They peg immediate technical support for the Indian currency at 84.00 a dollar. (Pratiksha)

India Rupee : Expected range for rupee - Sep 11

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 Ashish Shirke

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