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Informist, Thursday, Sep 19, 2024

By Kabir Sharma

MUMBAI – A 50 basis point rate cut by the US Federal Reserve late Wednesday led the rupee to close at a two-month high against the US dollar today, even as the Indian currency shed most of its early gains, dealers said. The rupee was unable to hold on to gains as its sharp rise prompted banks to buy the greenback on behalf of importers, citing attractive dollar/rupee levels, they said.

"Long dollar bets were unwounded in the morning due to Fed, which took it (dollar/rupee) down, but importers were waiting on these levels as they are seeing them after a long time," a dealer at a state-owned bank said. 

After rising to 83.5600 a dollar, the highest level since Jul 18, the rupee settled at 83.6800 a dollar today against Tuesday's close of 83.7500 a dollar. The rupee moved in a "broad" 17 paisa range today, which was refreshing for dealers as the Indian unit was confined to a narrow range over the past month.

The Indian unit saw some volatility today after the Fed rate cut led to a fall in the dollar index. After the Fed's rate decision, the dollar index slumped to a near-14-month low of 100.22 on Wednesday, the lowest level since Jul 20, 2023. At 1731 IST, the dollar index, which measures the strength of the dollar was 100.68, compared with the previous close of 100.93 on Wednesday and 101.01 on Tuesday. 

The US Federal Open Market Committee late on Wednesday cut the federal funds target range by 50 basis points to 4.75-5.00% at its September meeting, after 14 months of keeping it at an over-two-decade high. However, the fall in the dollar was limited as Fed Chair Jerome Powell cautioned against assuming that big rate cuts would continue.

Dealers said some importers and oil marketing companies bought the greenback due to attractive dollar rupee levels, which capped gains for the Indian unit. However, some banks sold the greenback for foreign fund inflows into domestic equities, which supported the rupee, dealers said. 

Some dealers speculated that the Reserve Bank of India bought the greenback around 83.60 a dollar, which also might have limited gains for the rupee. 

Market participants will also take cue from the policy decision by the Bank of England, where the central bank maintained the status quo and kept rates at 5.00%. Andrew Bailey, the governor of the bank, stated that inflationary pressures are diminishing and that the economy is developing largely as they anticipated. He remarked, "If this trend persists, we should be in a position to lower rates gradually over time." However, he emphasised the importance of keeping inflation low, cautioning against making cuts too quickly or excessively.

Dealers now await the outcome from the Bank of Japan, which is also seen keeping its policy unchanged on Friday. However, traders expect a further interest rate hike by the Bank of Japan before the end of this year.

PREMIUMS

Premium on the one-year dollar/rupee forward contract rose to a near-17-month-high intraday today, as interest rate differential between the US and India widened after the US Federal Open Market Committee cut the federal funds target range by 50 basis points on Wednesday, dealers said. The Fed cut its benchmark rates to 4.75-5.00%. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries.

After the one-year dollar/rupee forward premium rose to 2.35%, the highest level since Apr 27, 2023, a few banks sold dollars for forward delivery, which limited the rise in the premium, dealers said. 

At 1530 IST, the premium on the one-year exact-period dollar/rupee contract was 195.95 paise, against 196.22 paise on Wednesday. On an annualised basis, the premium was 2.34%, up from Wednesday's close of 2.33%.

OUTLOOK

On Friday, the rupee is expected to take cues from movement in the dollar index and crude oil prices, dealers said. Traders expect more inflows in the market to support the Indian unit.

"The market is trying to keep the rupee steady but inflows and a weak dollar index will likely make the rupee go up. The market is likely to react on day 3, the FOMC reaction will more likely be felt tomorrow," a dealer at a private bank said.

Dealers expect the RBI to continue its interventions to reduce volatility. They expect the Indian unit to continue to move in a narrow range against the greenback. During the day, the rupee is seen in a range of 83.55-83.75 a dollar, with strong technical resistance pegged at 83.50.

India Rupee - World FX:Australian dlr up 1% as dlr dn on Fed rate cut

MUMBAI – The Australian dollar was up 1% against the dollar as the dollar index was down after the US Federal Open Market Committee on Wednesday cut the federal funds target range by 50 basis points to 4.75-5.00%. The weak dollar index paved the way for a fall in crude prices and a rise in gold prices and the commodity-linked currency was supported by this. 

The Australian dollar also gained after data released today showed that the Australian Employment Change rose to 47,500 in August. The unemployment rate was unchanged at 4.2% in August, in line with expectations, according to data released by the Australian Bureau of Statistics. 

The New Zealand dollar was up 0.9% against the dollar as data showed New Zealand's GDP fell by only 0.2% in the second quarter, compared to the market forecast of a 0.4% fall.

The Euro was up 0.5% against the greenback as the dollar index fell. After the Fed's rate decision, the dollar index slumped to near a 14-month low of 100.22 on Wednesday. At 1459 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was 100.54, compared to the previous close of 100.93 on Wednesday and 101.01 on Tuesday. 

The pound sterling was up 0.5% against the dollar ahead of the Bank of England's interest rate decision due later today, where traders expect the central bank to maintain the status quo and keep rates at 5.00%.

The Japanese yen was down 0.3% against the dollar as the Bank of Japan will also announce their monetary policy on Friday and analysts expect them to keep the policy unchanged this month, but they expect a further interest rate hike by the Bank of Japan before the end of the year.  (Gowri Lakshmi)

India Rupee:Premium near 17-mo high; Fed cut widens rate differential

MUMBAI – Premium on the one-year dollar/rupee forward contract rose to an almost 17-month-high today, as interest rate differential between the US and India widened after the US Federal Open Market Committee cut the federal funds target range by 50 basis points on Wednesday, dealers said. The Fed cut its benchmark rates to 4.75-5.00%.

"After 50 bps cut, it (forward premiums) was expected to go up, but since these levels are so good to receive, the upside movement is capped," a dealer with a state-owned bank said.

After the one-year dollar/rupee forward premium rose to 2.35%, the highest level since Apr 27, 2023, a few banks sold dollars for forward delivery, which limited the rise in the premium, dealers said. "If you see, the current levels are really lucrative for exporters, and we are seeing a rise in their involvement in forwards," a dealer with a brokerage firm said.

Dealers said the rise in forward premiums was also limited because the benchmark 10-year US Treasury yield rose on Wednesday. The yield rose by 5 bps to end at 3.70%. Dealers said that with the US Fed embarking on its rate cut path, and the absence of any clarity about the Reserve Bank of India cutting rates, as viewed by the market, the interest rate differential between the US and India is likely to rise, driving dollar/rupee forward premiums higher.

The Summary of Economic Projections, released along with the FOMC statement, showed the median Federal Reserve official expects another 50 bps of rate cuts in 2024. There are two more FOMC meetings left in the year – in November and December.

At 1416 IST, the premium on the one-year exact-period dollar/rupee contract was 195.95 paise, against 196.22 paise on Wednesday. On an annualised basis, the premium was 2.34%, up from Wednesday's close of 2.33%.  (Sourabh Kumar)

India Rupee: Up on banks' dollar sales for FPI inflows into gilts mkt

MUMBAI – The rupee rose against the dollar as banks sold the greenback for foreign fund inflows in Indian government securities, dealers said. A weaker dollar index after the decision of the US Federal Open Market Committee to cut the benchmark rate by 50 basis points on Wednesday, also supported the Indian unit, dealers said.

"We are seeing bond inflows, which is helping the rupee," a dealer with a private bank said. During the day, the Indian rupee rose to 83.5600 a dollar, the highest level since Jul 18. 

The US FOMC cut the federal funds target range by 50 basis points to 4.75-5.00%, after 14 months of keeping it at an over two-decade high. After the Fed's rate decision, the dollar index slumped to near a 14-month low of 100.22 on Wednesday, the lowest level since Jul 20, 2023. At 1338 IST, the dollar index, which measures the strength of the dollar was 100.72, compared with the previous close of 100.93 on Wednesday and 101.01 on Tuesday. 

"The rupee breached (down) the 60 levels," a dealer at another private bank said. "It (rupee) can dip further." The Indian unit also gained against the greenback as traders unwound their long dollar bets after the US FOMC's decision.

A rise in Asian currencies also supported the rupee, dealers said. However, gains were limited as dealers said importers purchased dollars to take advantage of the relatively lower dollar/rupee levels. Oil marketing companies also purchased dollars, noting relatively lower crude prices. At 1337 IST, the November Crude contract on the Intercontinental Exchange was $74.48 per barrel, compared with the previous close of $73.65 on Wednesday. 

Market participants now await the policy decision by the Bank of England, due later today, where traders expect the central bank to maintain the status quo and keep rates at 5.00%. The Bank of Japan is also seen keeping its policy unchanged on Friday. However, traders expect a further interest rate hike by the Bank of Japan before the end of this year.

For the rest of the day, the rupee is seen at 83.55-83.75 against the dollar, dealers said. They peg immediate technical resistance for the Indian currency at 83.55 a dollar. (Gowri Lakshmi)

 India Rupee: Technical Levels for rupee - Sep 19

MUMBAI – At 0900 IST, the rupee was at 83.6825 a dollar, against the previous close of 83.7500. At 1124 IST, the rupee was at 83.6600 per dollar. The following are key support and resistance levels for the rupee as provided by leading banks and brokerages:

(Gowri Lakshmi)

India Rupee - Asia FX:Most up as dlr index weakens post FOMC decision

MUMBAI – Most Asian currencies were up against the greenback as the dollar index continued to weaken post the US Federal Open Market Committee meeting's decision to cut interest rates by 50 basis points on Wednesday, citing confidence in keeping inflation in line with the 2% target. After the Fed announced its decision to cut rates by 50 bps, the dollar index slumped to a near-14-month low of 100.22 on Wednesday, the lowest level since Jul 20, 2023.

US Fed Chair Jerome Powell said that "I don't see anything in the economy right now that suggests that the likelihood of a recession...You see growth at a solid rate, you see inflation coming down, and you see a labour market that's still at very solid levels." 

Later, at 1110 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 100.81 compared to the previous close of 100.31 on Wednesday and 101.01 on Tuesday.

The Philippines' peso was up 0.1% against the dollar. The Philippines central bank is planning for a cut in the Reserve Requirement Ratio (RRR) for banks this year, reports said. Bangko Sentral ng Pilipinas Governor Eli Remolona said at a press conference that the "RRR could be substantially reduced in 2024, with a further reduction in 2025". 

The Indonesian rupiah was up 0.3% against the greenback after Indonesia's central bank slashed its interest rates in more than three years on Wednesday. Bank Indonesia unexpectedly cut the benchmark rate by 25 bps to 6%. The central bank also cut the overnight deposit facility and lending facility rates by the same amount, to 5.25% and 6.75%, respectively.

The Thai baht was flat against the dollar. Thailand's Finance Minister, Pichai Chunhavajira, announced on Wednesday that he plans to meet with the central bank to discuss the new inflation target while the government advocates a reduction in interest rates. The government has been urging the Bank of Thailand to lower the rate from 2.50% to stimulate economic growth amid the pandemic-induced struggles, reports said. The upcoming rate review is scheduled for Oct 16.

Bucking the trend, the South Korean won was down 0.6% against the dollar and the Malaysian ringgit fell 0.3%.(Gowri Lakshmi)

India Rupee:Tad up as traders unwind long dlr bets post Fed rate cut

MUMBAI – The rupee was a tad up against the dollar today as traders unwound their long dollar bets after the US Federal Reserve slashed its benchmark rate by 50 basis points, dealers said. 

"There is long dollar unwinding happening, sentiment is positive around the rupee," a dealer at a state-owned bank said. An ease in the dollar index after the rate cut also supported the rupee, dealers said.

The US Federal Open Market Committee cut the federal funds target range by 50 basis points to 4.75-5.00% at its September meeting, after 14 months of keeping it at an over two-decade high. After the Fed announced its decision to cut rates by 50 bps, the dollar index slumped to near a 14-month low of 100.22 on Wednesday, the lowest level since Jul 20, 2023. 

However, after falling to a near 14-month low on Wednesday, the dollar pared those losses after Fed Chair Jerome Powell's press conference, where he cautioned against assuming that big rate cuts would continue. 

"The dollar index is on a recovery path, it is expected to go up further in the coming days," a dealer at a state-owned bank said. At 0928, the dollar index, which measures the strength of the dollar against six major currencies, was 101.02, compared to the previous close of 100.93 on Wednesday and 101.01 on Tuesday. 

"The rupee is expected to remain steady against the dollar this week, unlike its Asian peers which are losing against the dollar, it will be in 83.65-83.75 range", a dealer at another state-owned bank said. However, gains in the Indian unit may be capped as the fall in crude prices driven by the US Fed rate cuts, will likely prompt oil marketing companies to purchase dollars. 

Market participants now await the policy decision by the Bank of England, due later today, where traders expect the central bank to maintain the status quo and keep rates at 5.00%. The Bank of Japan is also seen keeping its policy unchanged on Friday. However, traders expect a further interest rate hike by the Bank of Japan before the end of this year. 

For the rest of the day, the rupee is seen at 83.60-83.75 against the dollar, dealers said. They peg immediate technical resistance for the Indian currency at 83.60 a dollar. (Gowri Lakshmi)

India Rupee: Expected range for rupee - Sep 19

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

(Gowri Lakshmi)

End

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

Edited by Deepshikha Bhardwaj

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