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Informist, Monday, Sep 23, 2024

By Pratiksha and Gowri Lakshmi

MUMBAI – The rupee erased almost all of its gains against the dollar today as state-owned banks bought the greenback, likely on behalf of the Reserve Bank of India and importers, dealers said. A rise in the dollar index during European trade also weighed on the currency, they said. 

"There was good demand (for dollars) around 83.45 (a dollar). They (RBI) were also active," said a dealer at a private bank. After touching a high of 83.4350 a dollar during the day, the Indian currency settled at 83.5525 a dollar, as compared to its previous close of 83.5625. The rupee moved in a range of 12 paise today. 

The rupee started the day higher against the dollar due to broad-based weakness in the dollar index on expectation that the US Federal Reserve may ease rates further this year, dealers said.

The Fed embarked on its policy easing cycle and cut interest rates by 50 basis points last week. The updated summary of economic projections from Fed officials guided 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 50% probability of a 50-bps rate cut by the Fed in November also.

An hour into trading today, the Indian currency rose to 83.4350 a dollar, the highest intra-day level since Jul 8, as foreign banks sold dollars on behalf of overseas investors looking to invest in the initial public offerings of domestic companies, which also supported the Indian unit, dealers said. Manba Finance Ltd's initial public offering opened for subscription today and will close on Wednesday. KRN Heat Exchanger and Refrigeration Ltd's public offer will open for subscription on Wednesday and close on Friday.

Banks also sold dollars on behalf of foreign portfolio investors looking to invest in domestic equities, which gave support to the local unit, dealers said. So far this month, FPIs have net infused almost $9.7 bln into Indian markets, the highest in a month this calendar year, according to latest data by the National Securities Depository Ltd. 

"FPIs have turned positive after the Fed rate cut. We are seeing constant selling (of dollars)," a dealer at a state-owned bank said. 

However, as soon as the Indian unit touched the day's high, state-owned banks rushed to buy dollars, likely on behalf of RBI, dealers said. "See, they are always there at some levels. Today's level was 83.43-83.45 (a dollar)," a dealer at another private bank said. "They bought (dollars) aggressively at these levels and left it around 83.50."

The central bank likely bought the greenback to prevent a sharp appreciation and excessive volatility in the Indian unit, dealers said. Further, state-owned banks also purchased the greenback on behalf of importers, including oil marketing companies, to make the most of the relatively lower dollar/rupee levels, dealers said. This, too, weighed on the domestic unit. 

"I think directionally, they (RBI) are letting it appreciate little by little. But we don't know till what level. Maybe 83.30 will be the top," said a dealer at a foreign bank. 

The dollar index, during European trade, rose above the 101 mark, tracking a slump in the euro, which weighed on the Indian unit, dealers said. At 1530 IST, the dollar index which measures the strength of the dollar against six major currencies was 101.12 compared to the previous close of 100.74 on Friday and 100.63 on Thursday.

FORWARDS

Premium on the one-year dollar/rupee forward contract settled at a near 18-month high today, as banks bought the greenback for forward delivery on the view that the difference between Indian and US yields may widen further, with the Fed likely to ease rates further this year, dealers said. 

With the Fed expected to go for more rate cuts this year, and no sight of a rate cut by the Reserve Bank of India yet, the interest rate differential between the US and India is likely to rise, driving dollar/rupee forward premiums higher. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries.

Meanwhile, a few banks sold the greenback for forward delivery, to take advantage of the relatively higher premium levels, capping gains in premiums, dealers said. 

Most dealers expect the one-year dollar/rupee forward premium to rise to 2.50% in the near term. At 1530 IST, the premium on the one-year exact-period dollar/rupee contract was 200.46 paise, against 198.59 paise on Friday. On an annualised basis, the premium was 2.40%, against Friday's close of 2.38%. 

OUTLOOK

On Tuesday, the rupee will take cues from movement in the dollar index and crude oil prices, dealers said. Market participants now await speeches by multiple Fed officials this week for more cues on the central bank's easing cycle. They also await the US September flash manufacturing and services PMI data, due later today. 

Dealers expect the Indian unit to continue to receive support from dollar sales for FPI inflows. However, they expect the RBI to also continue intervening in the market through dollar buys to limit the volatility and prevent the Indian unit from appreciating sharply. 

Looking at the recent movement in the currency, some dealers expect RBI to let the Indian unit to appreciate to 83.30-83.20 in the coming days. During the day, the rupee is seen at 83.35-83.60 a dollar, with strong technical resistance pegged at 83.40.

India Rupee - World FX: Euro down 0.6% on weaker-than-expected PMI

MUMBAI – The euro was down 0.6% against the greenback as the Eurozone Purchasing Managers' Index for this month was weaker than expected. Hamburg Commercial Bank's preliminary composite Eurozone PMI fell to 48.9 this month from 51.0 in August. 

A poll by Reuters had forecast a modest fall to 50.5. The services PMI declined to 50.5 in September, from 52.9 in August, below Reuters's forecast of 52.1. The Eurozone manufacturing PMI fell to 44.8 in September from 45.8 in August.

The dollar index rose above the 101 level, tracking a slump in the euro. The dollar index, which measures the strength of the dollar against six major currencies, was 101.1 at 1551 IST, compared to 100.74 on Friday and 100.63 on Thursday.

The pound sterling was down 0.5% against the greenback as the UK manufacturing PMI fell to 51.5 in September from 52.5 in August. The preliminary UK services business activity index declined to 52.8 in September, against market estimate of 53.5.

The Canadian dollar was flat against the greenback despite data on Friday showing that retail sales in Canada grew 0.9% in July from June. The Australian dollar was also flat against the US currency ahead of the Reserve Bank of Australia's policy decision on Tuesday, with traders expecting the central bank to maintain status quo.

The Swiss franc was down 0.1% as market participants expect an interest rate cut by the Swiss National Bank on Wednesday. Investors also expect the central bank to cut rates by another 25 bps again.  (Gowri Lakshmi)

India Rupee: Premium over 17-month high; US-India rate gap seen widening

MUMBAI – Premium on the one-year dollar/rupee forward contract rose to an over 17-month-high today, as traders assessed the chances of an increase in the interest rate differential between the US and India, as they expect the US Federal Reserve to cut rates further, dealers said. The US central bank slashed the benchmark rate by 50 basis points last week. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries. 

"After the rate cut (by the Fed), the general trend (of one-year dollar/rupee forward premium) is upwards," a dealer with a state-owned bank said. "And at higher levels we see receiving."

On an annualised basis, the one-year dollar/rupee forward premium touched 2.40%, the highest since Apr 10, 2023. A few banks sold the greenback for forward delivery to take advantage of a relatively higher forward premium, capping its gains, dealers said. 

Ever since expectations about the Fed cutting rates in September started building, the dollar/rupee forward premium has risen. So far this month, the one-year dollar/rupee forward premium rose over 27 bps. Once the Federal Open Market Committee announced its decision, the one-year premium saw a quick rise. Since the day of the Fed's decision, the premium has risen nearly 7 bps.

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. The projections also showed fed funds futures target rate at 3.25-3.50% at the end of 2025, suggesting a 200-bps rate cut in total of 200 bps rate cut from the peak.

"I think it will rise further to around 2.48%," the aforementioned dealer said. "But, we will wait for any indication of what our rates are going to be, before making any prediction regarding its movement." Dealers said they now await any indication from the Reserve Bank of India regarding the rate cuts in India, to gauge the forward premium's movement. 

At 1356 IST, the premium on the one-year exact-period dollar/rupee contract was 200.96 paise, against 198.59 paise on Friday. On an annualised basis, the premium was 2.41%, against Friday's close of 2.38%.  (Sourabh Kumar)

India Rupee: Erases most gains on likely dollar buys for RBI, importers

MUMBAI – The rupee erased most of its early gains as state-owned banks bought the greenback, likely on behalf of the Reserve Bank of India, dealers said. Banks' dollar purchases on behalf of importers also weighed on the Indian unit, they said. 

Dealers said the central bank is likely to have intervened through dollar purchases to prevent the Indian unit from appreciating sharply. The rupee rose to a high of 83.4350 a dollar earlier today, its highest level since Jul 8. The RBI likely purchased the greenback around 83.45 a dollar, dealers said. 

Further, state-owned banks bought dollars on behalf of importers, including oil marketing companies, to take advantage of the relatively lower dollar/rupee levels, dealers said.

"There is high resistance at the 83.50 (a dollar) level. It (rupee) has been stable at this level for quite sometime since the opening, the rupee may not rise further," a dealer at a private bank said. 

Further, the dollar index edged higher during European trade, which also weighed on the Indian unit, according to dealers. At 1308 IST, the index, which measures the strength of the dollar against six major currencies, was 101.07, compared to the previous close of 100.74 on Friday and 100.63 on Thursday. 

The Indian unit rose earlier today as foreign banks sold dollars on behalf of overseas investors looking to invest in the initial public offerings of domestic companies, dealers said. Manba Finance Ltd's initial public offering opened for subscription today and will close on Wednesday. 

Banks also sold dollars on behalf of foreign portfolio investors looking to invest in domestic equities, aiding the rupee, dealers said. 

For the rest of the day, the rupee is seen at 83.40-83.65 against the dollar, dealers said. They peg immediate technical resistance for the Indian currency at 83.40 a dollar. (Gowri Lakshmi)

India Rupee: Technical Levels for rupee - Sep 23

MUMBAI – At 0900 IST, the rupee was at 83.4700 a dollar, against the previous close of 83.5625. At 1107 IST, the rupee was at 83.5125 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 down after People's Bk of China cuts rate

MUMBAI – Most Asian currencies were down against the dollar after the People's Bank of China today unexpectedly cut its 14-day reverse repo rate to 1.85% from 1.95%. However, a rise in Asian equities limited losses in the emerging market units. 

The cut in China's 14-day policy loan rate increased expectations of further monetary policy easing in the world's second-largest economy. Pan Gongsheng, governor of China's central bank, will hold a press conference on Tuesday on financial support for economic development, alongside two other officials, according to reports. 

The South Korean won was down 0.3%, the worst hit among its Asian peers. The Philippine peso was down 0.2% against the dollar after the central bank decided to cut the reserve requirement ratio for larger banks last week. As at 0930 IST, the Philippines' PSEi was up 1.9%. 

The Taiwan dollar was down 0.1% against the greenback. Bucking the trend, the Thai baht was up 0.1% against the greenback as Bank of Thailand Governor Sethaput Suthiwartnarueput on Friday said Thailand did not need to cut interest rate cuts immediately, following the path of the US Fed. He noted that "lower rates would not alleviate the country's debt problem and the MPC doesn't need to hold off-cycle meetings to address this issue".

The dollar index remained weak on growing expectations that the US Federal Reserve may ease rates further this year, which supported Asian units. The US Fed cut interest rates by 50 basis points last week. As per the CME FedWatch tool, Fed fund futures show a 50% probability of a 50-bps rate cut by the Fed in November as well.

At 1033, the dollar index, which measures the strength of the dollar against six major currencies, was 100.75 compared with the previous close of 100.74 on Friday and 100.63 on Thursday. (Gowri Lakshmi)

India Rupee: Rises on weak dollar index, FX inflows; importers buy dollars

MUMBAI – The rupee rose against the dollar today due to broad-based weakness in the dollar index on expectation that the US Federal Reserve may ease rates further this year, dealers said. "There is strong sentiment in the market about further Fed rate cuts by the end of this year and further weakening of the dollar," a dealer at a private bank said. 

The US Fed slashed interest rates by 50 basis points last week. The updated summary of economic projections from US Fed officials guided 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 50% probability of a 50-bps rate cut by the Fed in November also.

At 1003, the dollar index, which measures the strength of the dollar against six major currencies was 100.78 compared with the previous close of 100.74 on Friday and 100.63 on Thursday. 

Further, banks sold dollars on behalf of overseas investors looking to invest in the initial public offerings of domestic companies, which also supported the Indian unit, dealers said. Manba Finance Ltd's initial public offering opened for subscription today and will close on Wednesday. KRN Heat Exchanger and Refrigeration Ltd's public offer will open for subscription on Wednesday and close on Friday.

However, some banks stepped in to purchase dollars on behalf of importers, noting the relatively lower dollar/rupee levels, which limited gains for the Indian unit, dealers said. Some dealers speculated that the central bank may also have intervened through dollar purchases to prevent the Indian currency from appreciating sharply.  

Market participants now await the US core personal consumption expenditures data, the Fed's preferred inflation gauge due Friday, where analysts expect a 0.2% month-on-month rise, taking the annual pace to 2.7%, while the headline index is seen slowing to just 2.3%.

"US data is lined up this week. That could possibly determine the movement of the rupee in the coming weeks. If the data shows higher than expected results, then the dollar could strengthen and the rupee may lose its gains," a dealer at a state-owned bank said.

For the rest of the day, the rupee is seen at 83.35-83.60 against the dollar, dealers said. They peg immediate technical resistance for the Indian currency at 83.40 a dollar. (Gowri Lakshmi) 

India Rupee : Expected range for rupee - Sep 23

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 Aditya Sakorkar

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