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Informist, Tuesday, Oct. 8, 2024

By Pratiksha

NEW DELHI – The rupee is expected to continue hovering near its record low due to a sharp rise in crude oil prices and a strong dollar index, dealers said. However, they expect the Reserve Bank of India to continue intervening in both the non-deliverable forwards market and the domestic spot market through dollar sales to prevent the Indian currency from hitting a lifetime low and falling beyond the psychologically crucial level of 84 per dollar.

Ever since the rupee has moved closer to the key level, the RBI has been proactive in keeping the Indian unit from testing it. On Monday, the central bank intervened actively in both the offshore NDF and spot market via dollar sales. In fact, it also did a 'verbal' intervention by asking some private and state-owned banks to refrain from placing large bets against the rupee in the domestic spot market. 

The rupee is likely to start the day at 83.98 a dollar, just shy of its record low of 83.9900 a dollar, hit on Sept. 5, and may move in a range of 83.90-83.99 a dollar during the day. The local unit settled at 83.9775 a dollar on Monday.  

Crude prices surged over 3% on Monday, rising above $80 per barrel for the first time since August, amid heightened fears of widespread conflict in West Asia and disruptions to supply. Reports said Hezbollah on Monday fired rockets at Israel's third-largest city, Haifa, and Israel looked prepared to increase its offensive into Lebanon, one year after the devastating Hamas attack on Israel that fuelled the Gaza war. At 0810 IST, the December Brent crude contract on the Intercontinental Exchange was $80.11 per barrel, compared to $80.93 a barrel on Monday. It was at $78.05 a barrel on Friday.  

Further, the dollar index remained strong as investors continued to assess the outlook for US rates after the stronger-than-expected non-farm payrolls data on Friday dashed hopes of large rate cuts by the US Federal Reserve. Safe-haven bets amid escalating tensions in West Asia also boosted the US unit. 

Fed fund futures now see no chance of a 50-bps rate cut by the Fed in November, whereas the probability of a 25-bps cut is now seen at 78.3%. The odds of no rate cut at all next month are 21.7%, according to the CME FedWatch tool. At 0810 IST, the dollar index, which measures the strength of the dollar against six major currencies, was 102.41, compared to 102.49 on both Monday and Friday. The index rose to a high of 102.69 on Friday, its highest level since Aug. 16. 

FORWARDS

The premium on the one-year dollar/rupee forward contract may fall sharply, tracking a jump in US Treasury yields, dealers said. The benchmark US 10-year note topped 4%, as investors readjusted their views about the path of interest rates from the Fed after the stronger-than-expected jobs report. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries.

However, banks may step in to buy dollars for forward delivery on behalf of importers, noting the relatively lower levels, which may limit the fall in premiums, dealers said. Market participants now await the outcome of the RBI's Monetary Policy Committee, due on Wednesday. 

According to an Informist poll, all but one of the respondents expect the rate-setting panel to stay pat on rates at 6.50%, with some expecting the Monetary Policy Committee to change its stance to "neutral" from "withdrawal of accommodation". On an annualised basis, the premium on the one-year exact-period dollar/rupee contract is seen at 2.25-2.35%. It ended at a near four-week low of 2.28% on Monday.

End

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

Edited by Namrata Rao

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