More Stories

Informist, Friday, Sep 20, 2024

By Gowri Lakshmi and Pratiksha

MUMBAI – The rupee ended at its highest level in over two months due to dollar sales for foreign fund inflows into domestic markets and a weakening dollar index, dealers said. However, state-owned banks' dollar purchases on behalf of the Reserve Bank of India and importers led to the Indian unit giving up some of its early gains, they said.

"After the Fed rate cut, we are seeing a lot of capital inflows, so that is what is giving the rupee strength," said a dealer at a state-owned bank. "They (RBI) are also allowing this appreciation to an extent."

After rising to a high of 83.4775 a dollar during the day, the Indian unit settled 0.1% higher at 83.5625 a dollar today. The rupee moved in a range of 16 paise today.

The rupee started the day slightly higher at 83.6300 a dollar due to weakness in the dollar index. The dollar index weakened after the US Federal Reserve's decision to slash interest rates by 50 basis points on Wednesday.

Market participants now expect the Fed to ease rates further this year, and consequently, more weakness in the dollar index. As per the CME FedWatch tool, Fed fund futures reflect a 40.3% probability of a 50-bps rate cut and a 59.7% chance of a 25-bps cut by the Fed in November. 

At 1530 IST, the dollar index, which measures the strength of the dollar against six major currencies, was 100.76, compared to its previous close of 100.63 on Thursday and 100.93 on Wednesday. The index fell to a low of 100.41 earlier today. 

Shortly after the market opened, the rupee rose above 83.60 a dollar, as banks sold dollars on behalf of overseas investors looking to invest in the upcoming initial public offerings of domestic companies. Manba Finance Ltd's IPO will open for subscription on Monday and close on Wednesday. KRN Heat Exchanger and Refrigeration Ltd's public offer will open for subscription on Wednesday and close on Sep 27. 

Further, foreign banks, including a UK-based bank, sold dollars for foreign fund inflows into the domestic equity and debt market, which led to the Indian unit rising above the key level of 83.50 a dollar, for the first time since Jul 12. The US central bank's 50-bps rate cut has led to robust foreign fund inflows into emerging markets, including India. So far this month, foreign portfolio investors have net infused $7.37 bln into Indian markets. 

"Foreign banks were active for most of the day. There was selling (dollars) for flows since morning. This may continue in the coming days too," said a dealer at a state-owned bank.

As soon as the rupee rose above 83.50 a dollar, the RBI stepped in to buy dollars, which capped a further sharp rise in the Indian currency, dealers said. However, the RBI's intervention was intermittent and not very aggressive in nature, they said.  

"If the RBI had not intervened, panic would have set into the market and the rupee would have even hit 83.30. We expect it (the rupee) to rise till 83.34-83.40," a dealer at a private bank said.

Dealers said the RBI's lack of aggressive dollar purchases also aided the Indian unit. "Their FX reserves numbers show that they want to keep building on it. $700 bln is the goal I feel," said a dealer at a foreign bank. India's foreign exchange reserves hit an all-time high of $689.46 bln as of Sep 13, according to data by the RBI after market hours. 
 

Further, banks also persistently bought dollars on behalf of importers, including oil marketing companies, to take leverage of the relatively lower dollar/rupee levels, which weighed on the Indian unit, dealers said.

A sharp rise in domestic equities also aided the Indian unit, dealers said. Today, the Nifty 50 index closed 1.5% higher and the BSE Sensex ended the session 1.6% higher. 

FORWARDS

Premium on the one-year dollar/rupee forward contract ended at an over 17-month high today as banks persistently bought the greenback for forward delivery on the view that the difference between Indian and US yields may widen further, with the US Fed likely to ease rates further this year, dealers said.

On Wednesday, the US Federal Open Market Committee cut the federal funds target range by 50 basis points to 4.75-5.00%. The updated summary of economic projections from US Fed officials guided for another 50-bps of cuts in 2024. The projections also showed 100 bps of policy easing in 2025 to 3.25-3.50%, suggesting a 200-bps rate cut in total over the next 15 months. 

Dealers said most banks and exporters were on the sidelines and avoided selling dollars for forward delivery, despite the one-year dollar/rupee forward premium rising to 2.39%, its highest level since Apr 10, 2023, as they expect more lucrative levels going ahead. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries. 

Most dealers see the one-year dollar/rupee forward premium rising to 2.50% in the near term. At 1530 IST, the premium on the one-year exact-period dollar/rupee contract was 198.59 paise, against 195.95 paise on Thursday. On an annualised basis, the premium was 2.38%, against Thursday's close of 2.34%.

OUTLOOK

On Monday, the rupee will take cues from movement in the dollar index and crude oil prices, dealers said. "The market will most likely be volatile, it will take some time to settle down. At least for the next few weeks, the rupee is expected to gain against the dollar," a dealer at a private bank said. 

Dealers expect the Indian unit to be supported by dollar sales by foreign banks for foreign fund inflows into the domestic market. However, they expect the RBI to continue intervening in the market through dollar buys to limit the volatility and prevent the Indian unit from appreciating sharply. 

Some dealers now expect the RBI to let the Indian unit appreciate to 83.30-83.20 in the coming days. "Looking at the past few sessions, it is clear they (the RBI) will let it appreciate gradually."

During the day, the rupee is seen in a range of 83.40-83.60 a dollar, with strong technical resistance pegged at 83.45.

India Rupee - World FX: Yen falls 1.1% after BoJ Ueda's comments

MUMBAI – The Japanese yen fell 1.1% against the dollar after Bank of Japan Governor Kazuo Ueda today steered clear of giving a clear signal whether an interest rate hike was on the cards in the months to come.

The BoJ today decided to keep its benchmark interest rate steady at 0.25%. "Our decision on monetary policy will depend on economic, price and financial developments at the time. Japan's real interest rates remain extremely low. If our economic and price forecasts are achieved, we will raise interest rates and adjust the degree of monetary support accordingly," Ueda said at his post-meeting press conference.

The pound sterling was up 0.1% against the dollar after data released today showed retail sales in the UK rose by a higher-than-expected 1% in August and growth in July was revised up. Economists polled by Reuters had forecast a monthly rise of 0.4% in sales volumes last month.

The Bank of England decided to keep its benchmark interest rates unchanged at 5.00% on Thursday, in line with market expectations. "It's vital that inflation stays low, so we need to be careful not to cut too fast or by too much," BoE Governor Andrew Bailey said. 

The euro was flat against the dollar. The dollar index edged slightly higher during European trade due to a fall in the Japanese yen. At 1615 IST, the dollar index, which measures the strength of the dollar against six major currencies, was at 100.80, compared to 100.63 on Thursday and 100.93 on Wednesday. 

The Australian dollar also traded flat against the dollar ahead of the Reserve Bank of Australia's policy meeting outcome on Tuesday, where it is expected to keep interest rates unchanged. According to a Reuters poll, the central bank may keep policy rates unchanged for the rest of the year and may begin its easing cycle early next year with a 25 basis points rate cut.  (Gowri Lakshmi)

India Rupee: Premium at 17-month high as US-India rate gap may widen more

NEW DELHI – Premium on the one-year dollar/rupee forward contract jumped to an over 17-month high today as banks persistently bought the greenback for forward delivery on the view that the difference between Indian and US yields may widen further, with the US Federal Reserve likely to ease rates further this year, dealers said.

On Wednesday, the US Federal Open Market Committee cut the federal funds target range by 50 basis points to 4.75-5.00%. The updated summary of economic projections from US Fed officials guided for another 50-bps of cuts in 2024. The projections also showed 100 bps of policy easing in 2025 to 3.25-3.50%, suggesting a 200-bps rate cut in total over the next 15 months. As per the CME FedWatch tool, Fed fund futures reflect a 44.5% probability of a 50-bps rate cut by the Fed in November as well.

"Everybody is pricing in more rate cuts (by the Fed) now, and there is still no rate cut from the RBI in the picture," said a dealer at a big state-owned bank. "The levels will rise more, which is why we are not seeing much receiving around these levels."

Dealers said most banks and exporters were on the sidelines and avoided selling dollars for forward delivery, despite the one-year dollar/rupee forward premium rising to 2.39%, its highest level since Apr 10, 2023, as they expect more lucrative levels going ahead. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries. 

Most dealers see the one-year dollar/rupee forward premium rising to 2.50% in the near term. At 1430 IST, the premium on the one-year exact-period dollar/rupee contract was 199.31 paise, against 195.95 paise on Thursday. On an annualised basis, the premium was 2.39%, against Thursday's close of 2.34%.  (Pratiksha) 

India Rupee: Surges on FX inflows, weak dollar; RBI's dollar buys cap rise

MUMBAI – The rupee rose sharply against the dollar today as foreign banks, including one based in the US, continuously sold dollars for foreign fund inflows and the dollar index remained weak, dealers said. However, state-owned banks' dollar purchases, likely on behalf of the Reserve Bank of India, limited gains for the Indian currency, they said. 

The dollar index weakened after the US Federal Reserve on Wednesday slashed interest rates by 50 basis points, and guided for further easing in this calendar year. As per the CME FedWatch tool, Fed fund futures reflect a 42% probability of a 50-basis-point rate cut by the Fed in November as well.

"This is all the effect of the US Fed cut, the market is very volatile today," dealers said. At 1246 IST, the dollar index which measures the strength of the dollar was 100.55, compared to the previous close of 100.63 on Thursday and 100.93 on Wednesday. 

The US central bank's sizeable rate cut has triggered large foreign fund inflows into emerging markets, including India. Dealers said foreign banks continuously sold dollars for foreign fund inflows into the domestic equity and debt market.

Following this, the Indian unit touched a high of 83.4775 a dollar, rising past the key level of 83.50 a dollar for the first time since Jul 12. "We thought it would be difficult to breach the 83.50 level, now that it breached the level, it could easily rise further," a dealer at a state-owned bank said. 

Dealers said state-owned banks bought the greenback, likely on behalf of the central bank at around 83.50 a dollar, to limit a further sharp appreciation in the Indian unit and stock up its foreign exchange reserves. However, the RBI's intervention was sporadic and not very aggressive in nature, they said.  

Further, banks also persistently bought the greenback on behalf of importers, who wanted to make the most of the relatively lower dollar/rupee levels, which weighed on the Indian unit, dealers said.  Traders expect the Indian unit to be under pressure from importers' dollar purchases throughout the day. 

For the rest of the day, the rupee is seen at 83.45-83.65 against the dollar, dealers said. They peg immediate technical resistance for the Indian currency at 83.45 a dollar.  (Gowri Lakshmi)

India Rupee: Technical Levels for rupee - Sep 20

MUMBAI – At 0900 IST, the rupee was at 83.6300 a dollar, against the previous close of 83.6800. At 1055 IST, the rupee was at 83.5500 per dollar. The following are key support and resistance levels for the rupee as provided by leading banks and brokerages:

(Gowri Lakshmi)

India Rupee: Rises sharply on IPO-linked FX inflows, weak dollar index

MUMBAI – The rupee rose sharply against the dollar today, in line with its Asian peers, as banks sold dollars for foreign fund inflows and the dollar index continued to weaken, dealers said. 

Dealers said the foreign fund inflows were on account of overseas investors looking to invest in the upcoming initial public offerings of domestic companies. Manba Finance Ltd's IPO will open for subscription on Monday and close on Wednesday. KRN Heat Exchanger and Refrigeration Ltd's public offer will open for subscription on Wednesday and close on Sep 27. 

Further, the dollar index remained weak after the US Federal Reserve cut rates by 50 basis points on Wednesday. Fed policymakers have projected the benchmark interest rate would fall by another half a percentage point by the end of this year, a full percentage point next year, and half a percentage point in 2026. As per the CME FedWatch tool, Fed fund futures reflected a 43% probability of a 50-basis-point rate cut by the Fed in November as well.

At 0950, the index, which measures the strength of the dollar against six major currencies, was 100.54 at 0951 IST, compared to 100.63 on Thursday and 100.93 on Wednesday.

"The central bank may intervene little by little at every level, but they are not aggressively absorbing (dollars)," a dealer at a private bank said. 

Dealers expect importers to step in to buy dollars, noting relatively lower dollar/rupee levels, which may cap gains for the local unit. They also expect the Reserve Bank of India to buy dollars around 83.50 a dollar level to limit a sharp appreciation in the Indian unit.  

"It may be difficult to break the 83.50 levels, however, it could touch 83.47-83.48 levels and come back at 83.50," a dealer at a state-owned bank said.

For the rest of the day, the rupee is seen at 83.50-83.70 against the dollar, dealers said. They peg immediate technical resistance for the Indian currency at 83.50 a dollar.  (Gowri Lakshmi) 

India Rupee - Asia FX: Most up on weak dollar index after Fed rate cut

MUMBAI – Most Asian currencies rose against the dollar as the dollar index remained weak after the US Federal Reserve's decision to slash interest rates by 50 basis points on Wednesday. A rise in Asian equities also aided the currencies. 

On Wednesday, the dollar index had slumped to a near 14-month low after the Fed's policy decision. Fed policymakers have projected the benchmark interest rate would fall by another half a percentage point by the end of this year, a full percentage point next year, and half a percentage point in 2026. As per the CME FedWatch tool, Fed fund futures reflected a 43% probability of a 50-basis-point rate cut by the Fed in November as well.

At 0842, the dollar index, which measures the strength of the dollar against six major currencies, was at 100.60, compared to 100.63 on Thursday and 100.93 on Wednesday.

The Indonesian rupiah was up 0.9% against the greenback, the most amongst its peers. This is despite the Bank Indonesia unexpectedly slashing interest rates by 25 bps on Wednesday. Economists polled in a Bloomberg survey expect another 25 bps rate cut by the end of the year. 

The Malaysian ringgit was up 0.6% against the greenback. The Chinese yuan was up 0.1% after China unexpectedly left its benchmark lending rates unchanged today. Market participants expected an interest rate cut after the US Fed embarked on its policy easing cycle on Wednesday.

The Thai baht was up 0.1% against the dollar. Earlier today, Thailand's central bank chief emphasised the need for central bank independence in setting monetary policy amid a lengthy disagreement with the government over whether interest rates should be cut or not to support the economy, reports said.

The Taiwan dollar was up 0.1% against the dollar. Further, the central bank on Thursday kept its interest rates unchanged, but hiked the required reserve ratio on time and demand deposits by 25 bps. The bank also tightened mortgage rules for retail and corporate buyers. 

The Philippines' peso was up 0.1% against the greenback. The Philippines' total balance of payments recorded a surplus of $88 mln in August, a rise from a surplus of $62 mln in July, the central bank said Thursday.

Further, the Philippines' Finance Secretary Ralph Recto said Thursday that he will back a 50-bps rate cut at the next policy meeting in October. The finance chief's remarks came a day after Bangko Sentral ng Pilipinas Governor Eli Remolona signalled that the Fed move isn't the main consideration in deciding borrowing costs.  (Gowri Lakshmi)

India Rupee : Expected range for rupee - Sep 20

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 Saji George Titus

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.