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Informist, Wednesday, Oct. 9, 2024

By Gowri Lakshmi  

MUMBAI – The rupee ended flat against the dollar on Wednesday despite the Reserve Bank of India changing its monetary policy stance to 'neutral' from 'withdrawal of accomodation'. Further, dealers speculated that the state-owned banks sold the greenback, likely on behalf of the RBI to prevent the rupee from inching toward the psychologically crucial level of 84 per dollar.

"The rupee reacted quite neutral to the monetary policy outcome today, we did expect it to climb up, but it did not react at all," a dealer at a private bank said. 

The rupee settled flat at 83.9625 a dollar on Wednesday, near its lifetime low of 83.9900 a dollar it hit on Sept. 5. The rupee moved in a tight range of 5 paise on Wednesday. 

Further, the domestic currency got a boost after the FTSE Russell announced that the global index provider will be adding India's government bonds under the fully accessible route to its Emerging Markets Government Bond index and regional indices starting from September 2025. Dealers also said that some banks sold the dollars, on behalf of overseas investors looking to invest in initial public offerings of companies. 

The Indian rupee gained support from some foreign banks selling the greenback, likely on behalf of overseas investors who were looking to invest in the initial public offerings of domestic companies, dealers said. Shiv Texchem Ltd. and Garuda Construction and Engineering Ltd. opened for public offerings on Tuesday and will close on Thursday.

Further, the RBI maintained the repo rate at 6.50% with five out of six monetary policy committee members supporting the decision. One member voted against the status quo. On the stability of the rupee, Das Wednesday said the low volatility in the domestic currency market was largely attributed to strong macroeconomic fundamentals, with the foreign exchange rate of the rupee being range bound.

The rupee opened slightly up against the dollar on Wednesday. Throughout the day, banks purchased the greenback on behalf of oil marketing companies, which weighed on the rupee, dealers said. A fall in crude oil prices prompted oil companies to purchase dollars in anticipation of an increase in crude prices in the future, dealers said. "Crude prices are uncertain. The volatility in crude prices is due to the Middle East situation, the volatility is spilt over to the rupee as well," a dealer at a private bank said.

Oil prices fell over $4 per barrel on Tuesday on reports of likely ceasefire negotiations between Hezbollah and Israel. However, traders remain wary of a potential Israeli attack on Iranian oil infrastructure, which may cause supply-side disruption, thereby increasing crude prices. US President Joe Biden is scheduled to meet Israeli Prime Minister Benjamin Netanyahu late Wednesday to discuss any strikes against Iran, a Reuters report said. However, dampened demand from China, the world's largest crude oil importer, capped gains in crude oil prices.

At 1530 IST, the December Brent Crude contract on the Intercontinental Exchange was $76.87 per barrel, compared with $77.18 on Tuesday and $80.93 a barrel on Monday.

Further, a strong dollar index also put downward pressure on the domestic unit, dealers said. The dollar index remained strong owing to safe-haven asset demand amid geopolitical tensions in West Asia, dealers said. At 1530 IST, the dollar index which measures the strength in the dollar against six major currencies was 102.61, compared with its previous close of 102.47 on Tuesday and 102.48 on Monday. 

Market participants now await the US Federal Open Market Committee minutes due later in the day, which will give further insights into the discussions on the deteriorating labour market and when the Fed would likely slash their interest rates next. Investors now price in an 86.7% probability of a 25-basis-point rate cut and a 13.3% chance of the Fed keeping the rates unchanged in November, according to the CME FedWatch tool.

Traders also await the US weekly jobless claims data due on Friday and the US consumer price index due on Thursday. The consumer price index for September is forecast to have risen 0.1% on a monthly basis, after rising 0.2% in August, according to a poll by Dow Jones. The core CPI is expected to have risen 0.2% in September, after rising 0.3% in August, the poll showed.

FORWARDS

Premium on the one-year dollar/rupee forward contract fell after the Reserve Bank of India's Monetary Policy Committee on Wednesday changed the stance of monetary policy to 'neutral' from 'withdrawal of accommodation', dealers said. Before the start of the speech by RBI Governor Shaktikanta Das, the one-year premium was around 2.27% on an annualised basis. After the announcement of the change in stance, the premium fell to near 2.22%.

With the change in stance, market participants are seeing the interest rate differential between the US and India not rising as much as previously expected, dealers said. As the RBI changed its stance, dealers see an interest rate cut by the central bank sooner than previously thought. A few dealers were of the view that the central bank may cut rates by the end of 2024.

Further, with the latest non-farm payrolls data showing an underlying strength in the US economy, the odds of a large rate cut by the US Federal Reserve in November have decreased. At its next meeting in November, Fed funds futures traders do not see the US Federal Open Market Committee cutting rates by 50 basis points. The odds of a 25-bps rate cut have increased to 86.7% as of Wednesday, up from 64.8% a week ago. The remaining odds have shifted to keeping rates steady.

At 1530 IST, the premium on the one-year exact-period dollar/rupee contract was 188.92 paise, against 191.17 paise on Tuesday. On an annualised basis, the premium was 2.23%, against Tuesday's close of 2.28%.

OUTLOOK

On Thursday, the rupee will take cues from movements in the dollar index after the release of the US Federal Reserve Open Market Committee meeting minutes due later in the day. The rupee will also take cues from crude oil prices as investors remain wary of a supply-side disruption caused by a likely Israeli attack on Iranian oil infrastructure.

Further, dealers expect the RBI to continue selling dollars to keep the Indian currency from falling beyond the psychologically crucial level of 84-per-dollar. 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: New Zealand dlr dn 1% after 50-bps cut by central bk

MUMBAI – The New Zealand dollar was down 1% against the greenback, its lowest level since August, after the Reserve Bank of New Zealand cut benchmark interest rates by 50 basis points on Wednesday. The central bank opted for the steep cut as inflation is under its target of 1-3% at 2%, and in view of a subdued economy. The central bank started its easing cycle in August, with a 25-bps rate cut. 

The Australian dollar was down 0.2% against the dollar, tracking losses in the New Zealand dollar. Any significant economic/monetary changes in New Zealand will impact the Australian currency owing to their close bilateral trade relations. 

The Japanese yen was down 0.2% against the greenback. Remarks from a former Bank of Japan policymaker suggested greater possibility of an interest rate hike. Eiji Maeda, in an interview on Tuesday, said January had the highest probability for the BoJ to hike its rates. "That would be about a half year since the July rate hike, and that's also when the bank releases its latest economic projections," he said. 

The euro was down 0.2% against the dollar as market participants expect the European Central Bank to slash its deposit facility rate by another 50 bps by the end of this year, with a 25-bps cut in each of the policy meetings scheduled for the year. The ECB's next monetary policy meeting is scheduled for Oct. 17. 

The dollar continues to strengthen, tracking demand for safe haven flows amid rising tension in West Asia. At 1457 IST, the dollar index, which measures the strength of the dollar against six major currencies, was 102.67, compared to its previous close of 102.47 on Tuesday and 102.48 on Monday.

Market participants keenly await minutes of the US Federal Open Market Committee's September meeting, due to be released later on Wednesday. Traders will look for further cues for the next likely interest rate cut by the US Fed Reserve. Traders now price an 86.8% probability of a 25-bps rate cut, with a 13.2% chance of the Fed maintaining the policy rate. (Gowri Lakshmi)

India Rupee: Premium falls after RBI's MPC changes stance to 'neutral'

MUMBAI - Premium on the one-year dollar/rupee forward contract fell after the Reserve Bank of India's Monetary Policy Committee on Wednesday changed the stance of monetary policy to 'neutral' from 'withdrawal of accommodation', dealers said. Before the start of the speech by RBI Governor Shaktikanta Das, the one-year premium was around 2.27% on an annualised basis. After the announcement of the change in stance, the premium fell to near 2.22%.

"After the governor started speaking, and the stance was changed, we saw forwards fell," a dealer with a state-owned bank said. The RBI, while changing its stance unanimously, left the policy repo rate unchanged at 6.50% with a majority of 5 votes to 1. The rate-setting panel's decision on the repo rate was in line with expectations. Most respondents in an Informist poll had also expected the MPC to retain the 'withdrawal of accommodation' stance, with only nine predicting a change to 'neutral'.

With the change in stance, market participants are seeing the interest rate differential between the US and India not rising as much as previously expected, dealers said. As the RBI changed its stance, dealers see an interest rate cut by the central bank sooner than previously thought. A few dealers were of the view that the central bank may cut rates by the end of 2024.

Further, with the latest non-farm payrolls data showing an underlying strength in the US economy, the odds of a large rate cut by the US Federal Reserve in November have decreased. At its next meeting in November, Fed funds futures traders do not see the US Federal Open Market Committee cutting rates by 50 basis points. The odds of a 25-bps rate cut have increased to 86.7% as of Wednesday, up from 64.8% a week ago. The remaining odds have shifted to keeping rates steady.

The yield on the benchmark 10-year US Treasury note was largely steady on Tuesday, as market participants waited for further data points from the US, especially the US CPI figures, to assess the quantum of rate cut by the Fed going ahead. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries. 

The consumer price index for September, which is due to come on Thursday, is forecast to have risen 0.1% on a monthly basis, after rising 0.2% in August, according to a poll by Dow Jones. Core CPI is expected to have risen 0.2% in September after rising 0.3% in August, the poll showed. Before the CPI data, investors would also keep an eye on the release of the minutes of the Fed's latest policy meeting, due Wednesday.

At 1227 IST, the premium on the one-year exact-period dollar/rupee forward contract was 187.31 paise, against 191.17 paise on Tuesday. On an annualised basis, the premium was 2.21%, lower than Tuesday's close of 2.28%.  (Sourabh Kumar)

India Rupee: Steady even as MPC changes stance to 'neutral', holds repo rate

MUMBAI – The rupee remained steady against the dollar after the Reserve Bank of India's October monetary policy outcome where the panel unanimously decided to change its stance to 'neutral' from 'withdrawal of accomodation'. "The rupee was in a tight range and went a tad up during the MPC announcement," a dealer at a private bank said. Market participants now await the US Federal Open Market Committee meetings' minutes due later in the evening, dealers said.

Reserve Bank of India Governor Shaktikanta Das announced that the six-member monetary policy committee decided to keep the central bank's benchmark repo rate unchanged at 6.50%. Das also said that the central bank has changed its monetary policy stance to 'neutral' unanimously as the RBI is "unambiguously focused on a durable alignment of inflation and economic growth". The rupee has moved 6 paise so far on Wednesday. 

"Every time the market expects the rupee to be volatile before the MPC, but since the outcome mostly aligns with the expectations, the rupee is not impacted much during and after MPC," a dealer at a state-owned bank said.

Further, Das reiterated that the low volatility in the rupee was attributed to "strong macroeconomic fundamentals", with the rupee foreign exchange rate too being largely range-bound. He said the upward growth of the domestic economy shows the resilience of the Indian economy amid geopolitical tensions and geoeconomic fragments globally. 

"The rupee may take the next big cue from the minutes (of FOMC) due later today," a dealer at a state-owned bank said. The dollar index appreciated slightly ahead of the release of the FOMC minutes. At 1120 IST, the dollar index, which measures the strength of the dollar against six major currencies, was 102.55, compared to its previous close of 102.47 on Tuesday and 102.48 on Monday.

Market participants now await the US FOMC minutes, which will give further insights into the discussions on the deteriorating labour market and when the Fed would likely slash their interest rates next. Investors now price a 86.7% probability of a 25-basis-point rate cut and a 13.3% chance of the Fed keeping the rates unchanged in November, according to the CME FedWatch tool. For the rest of the day, the rupee is seen in the range of 83.90-83.99 against the dollar, dealers said. They see strong technical support for the Indian currency at 84.00 a dollar. (Gowri Lakshmi)

India Rupee - Asia FX: Most up tracking gains in domestic shares

MUMBAI – Most Asian currencies were up against the dollar, tracking gains in domestic shares as tensions in West Asia eased. However, a strong dollar index continued to weigh on currencies as demand for the dollar increased owing to investors' risk-off sentiment and safe-haven inflows amid geopolitical tensions. At 1013 IST, the dollar index which measures the strength of the dollar against six major currencies was 102.60, compared to its previous close of 102.47 on Tuesday and 102.48 on Monday.

The Thai baht was up 0.5% against the greenback as economists and business executives called for the Bank of Thailand's new board chairman to maintain stability of the financial system and to ensure that the country tackles its economic challenges, reports said. Kittiratt Na-Ranong, former finance minister and economic advisor to the former prime minister, has been nominated as the new chairman of the board of  Bank of Thailand. Kittiratt Na-Ranong is a critic of the central bank's hawkish policies and is an ally of the ruling party.  

The South Korean won was up 0.2% against the dollar as the country recorded a current account surplus for the fourth consecutive month at $6.6 billion in August. The services account deficit narrowed to $1.23 biliion in August from a deficit of $2.38 billion in July. Further, FTSE Russell announced that South Korean government bonds would be included in the global index from November 2025, with South Korean government bonds representing 2.22% of the index on a market value-weighted basis.

The Indonesian rupiah was up 0.2% against the dollar. However, gains were limited as the domestic benchmark index, the Jakarta Composite Index, was down 4.8% on Wednesday. However, the index was up over 8% in early Asian trade. The Taiwan dollar was up 0.1% as gains were capped after Taiwan's export growth slowed to 4.5% on year in September. Further, imports exceeded to a three-month high of 17.3% on year, weighing on the trade balance surplus.

The Malaysian ringgit traded flat against the dollar. Bank Negara Malaysia's international reserves climbed to $2.9 billion as of Sept. 30. The rise in reserves was driven by a sharp increase in foreign currency reserves, gold and special drawing rights, reports said. (Gowri Lakshmi)

India Rupee : Tad up ahead of RBI monetary policy outcome; seen status quo

India Rupee : Tad up ahead of RBI monetary policy outcome; seen status quo

MUMBAI – The rupee was slightly up against the dollar on Wednesday as market participants awaited the Reserve Bank of India's Monetary Policy Committee meeting decision, due at 1000 IST, dealers said. Further, the news of inclusion of Indian sovereign bonds in the FTSE Russell index is expected to attract foreign fund inflows into the debt market, supporting the rupee, they said. 

"The monetary policy committee may keep the (repo) rates unchanged. The stance may change, but it too has little probability. This will probably keep the rupee stable for the day," a dealer at a private bank said. The RBI's rate-setting panel is expected to keep the benchmark repo rates unchanged at 6.50%, according to an Informist poll. Further, few respondents in the poll also suggested that the RBI may likely change their stance to "neutral" from "withdrawal of accomodation".

The rupee is likely to receive support from foreign fund inflows after the FTSE Russell announced that the global index provider will be adding India's government bonds under the fully accessible route to its Emerging Markets Government Bond index and regional indices starting from September 2025. "The inflows are certainly expected but a bulk of it will be later, the volumes for the time being will be less," a dealer at a state-owned bank said.

The Indian rupee was also aided as foreign banks sold the greenback on behalf of overseas investors who were looking to invest in the initial public offerings of domestic companies. Shiv Texchem Ltd. and Garuda Construction and Engineering Ltd. opened for public offerings on Tuesday and will be closing on Thursday.

However, a strong dollar index continues to weigh on the Indian unit owing to safe-haven demand amid geopolitical tensions in West Asia. At 0930 IST, the dollar index, which measures the strength of the dollar against six major currencies, was 102.57, compared to its previous close of 102.47 on Tuesday and 102.48 on Monday.

For the rest of the day, the rupee is seen in the range of 83.90-83.99 against the dollar, dealers said. They see strong technical support for the Indian currency at 84.00 a dollar. (Gowri Lakshmi)

India Rupee: Expected range for rupee - Oct 9

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 Akul Nishant Akhoury

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