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Informist, Tuesday, Dec. 10, 2024

By Gowri Lakshmi

MUMBAI – The rupee ended at a record closing low against the dollar as traders' expectations of an interest rate cut in February increased after Revenue Secretary Sanjay Malhotra was named as the new governor of the Reserve Bank of India on Monday, dealers said. Malhotra will take charge as the 26th governor of the RBI on Wednesday, replacing Shaktikanta Das whose extended tenure ended on Tuesday.

However, some public-sector banks sold dollars, likely on behalf of the central bank, which prevented the rupee from falling sharply and curbed excessive volatility, they said. "There is fear of a further fall in the rupee now that an interest rate cut is more likely (in February)," a dealer at a private bank said. 

After hitting a lifetime low of 84.8600 a dollar, the rupee settled at 84.8525 against the greenback. With a fall of over 0.1% against the US currency, the rupee was the worst performer currency among its emerging market peers on Tuesday.

After trading around 84.81 a dollar in the offshore non-deliverable forwards market, the rupee went on to open at 84.7775 a dollar as the RBI likely sold dollars in the offshore NDF market, dealers said. On Monday, the rupee fell as much as 84.90 a dollar in the offshore NDF market as soon as the announcement of the new RBI governor was made.

As soon as the domestic spot market opened, the rupee came under immense pressure as market participants reacted to the news of Malhotra's appointment as the RBI governor by almost fully pricing in the likelihood of an interest rate cut in February. 

"We expect a dovish stance from the new governor, with the rate cut much likely in February," a dealer at a state-owned bank said. "We are hoping at least two (interest rate) cuts next year, if not one large cut," another dealer at a private bank said. Earlier in the day, Malhotra told reporters that he would continue to work based on the requirements of the Indian economy, but would have to first understand his new position before commenting on the same.

Following market participants' extreme reaction to the announcement of the new governor's appointment, importers rushed to purchase the greenback, in fear that the Indian unit may depreciate further, which also weighed on the Indian unit, dealers said. 

However, as soon as the local unit inched closer to the key support level of 84.85 a dollar, some public sector banks stepped in to sell dollars, likely on behalf of the RBI, which prevented the Indian unit from falling sharply. Despite the RBI's dollar sales intervention, the rupee breached the key support level and fell to a lifetime low of 84.8600 a dollar. Some dealers said the central bank's intervention through dollar sales was not very aggressive in nature. 

"We can expect the rupee touching 84.90 a dollar this month. If it breaches that level, several stop losses will be triggered and the rupee will quickly fall to 85.00 a dollar and 85.50 is not far thereafter," a dealer at a state-owned bank said. 

The decision on the appointment of a new governor has also caused investors to fear a possible shift in the central bank's intervention strategy in the foreign exchange market. Since last year, the RBI has been intervening aggressively in the currency market, leading to minimal volatility in the exchange rate. 

"The market expects the new governor to be more flexible in his policies related to the dollar-rupee. As REER remains above 107.21 in October, I expect rupee to reach 85.00 by month-end and 85.50 by March-end," said a dealer at a brokerage firm. 

Some banks also sold the greenback on behalf of exporters, who wanted to take advantage of relatively higher dollar/rupee levels, which aided the rupee, dealers said. "Exporters are active, not aggressive, they will keep hoping the rupee to fall further every day. Most are now waiting for 84.90 levels to hit, but even then we know breaching that level will immediately take rupee to 85.00 a dollar," a dealer at a state-owned bank said.

Market participants are now keenly waiting for the US consumer price index data, due Wednesday. Investors will closely assess the data to get more insights into the monetary policy decisions of the US Federal Reserve next week. The data is anticipated to show a rise in annual headline inflation to 2.7%, up from 2.6%, while core CPI is expected to remain steady at 3.3%, according to a poll by Down Jones. 

Currently, traders price in an 89.5% probability of the US Fed lowering its rates by 25 basis points, while they see a 10.5% chance of the central bank maintaining status quo. At 1530 IST, the dollar index, which measures the strength of the dollar against six major currencies, was 106.40, compared with 106.17 on Monday and 105.97 on Friday. 

Further, the offshore Chinese yuan rose after reports said that the Chinese government will change its monetary policy stance to "appropriately loose" next year, to support growth. This also aided the local unit, dealers said. 

FORWARDS
Premiums on the one-year dollar/rupee forward contract fell as the Reserve Bank of India likely sold dollars for one-month to six-month forward delivery on Tuesday, dealers said. The RBI is likely to have conducted buy-sell swaps in the forwards market, maturing in January and May, dealers said. The RBI's forward dollar sales were likely in order to nullify its spot interventions and avoid pushing out rupee liquidity, they said. 

Premiums also fell due to a rise in the benchmark 10-year US Treasury yield, dealers said. US Treasury yields rose Monday ahead of US inflation figures for last month, set to be released Wednesday. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries.

Additionally, growing expectations of a rate cut by the RBI in February after the appointment of the new RBI governor also weighed on the forward premiums, according to dealers. With increased chances of a rate cut in India, the US-India rate differential may not widen as much, thus, weighing on forward premiums.

At 1530 IST, the premium on the one-year exact-period dollar/rupee forward contract was 174.75 paise, against 176.50 paise on Monday. On an annualised basis, the premium was at 2.06%, as against Monday's close of 2.08%.

OUTLOOK

On Wednesday, the rupee will take cues from the movement in the dollar index ahead of the release of the US inflation data, dealers said. The local unit will also take cues from movement in crude oil prices and the offshore Chinese yuan, they said.

The central bank is expected to continue intervening through dollar sales to prevent the rupee from falling sharply and to curb any sudden volatility, they said. 

They also expect importers to continue purchasing dollars in fear of a further depreciation in the rupee, which may put pressure on the Indian currency, dealers said. The rupee is seen in a range of 84.70-84.90 a dollar, with strong technical support pegged at 84.85 a dollar.

India Rupee - World FX: Australian dollar down 0.8% on hints of Feb rate cut

MUMBAI – The Australian dollar was down 0.8% against the US currency after the Reserve Bank of Australia's statement on the latest monetary policy decision indicated chances of a rate cut at its next meeting in February. The Australian central bank on Tuesday kept rates unchanged at 4.35%.

The euro fell 0.2% against the US dollar ahead of the European Central Bank's rate decision on Thursday, wherein it is expected to cut rates by 25 basis points.

The dollar index strengthened in early European trade ahead of the release of the November US inflation figures on Wednesday. The data is expected to show a rise in annual headline inflation to 2.7%, up from 2.6%, while core CPI is expected to remain steady at 3.3%, according to a poll by Down Jones. While there are predictions of a rate cut by the US Federal Reserve in December, market participants remain attentive to the central bank's careful approach because of persistent inflation worries.

The dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 106.36, at 1637 IST, against 106.17 on Monday and 105.97 Friday. Consequently, the Japanese yen, which carries a weightage of 13.6% in the dollar index, fell 0.3% against the US currency. 

The pound sterling was steady against the dollar. Market participants await the rate decision by the Bank of England next week, where it is expected to keep the rates steady. The Canadian dollar was also steady against the US unit.  (Sourabh Kumar)

India Rupee: Premium dn on rise in US yld, expectation of India Feb rate cut

MUMBAI - The premium on the one-year dollar/rupee forward contract fell Tuesday due to a rise in the benchmark 10-year US Treasury yield, dealers said. They said expectations of an early rate cut in India, after the new RBI governor was appointed, also dragged forward-premiums lower. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries.

"Longer tenures are down, largely on the rise in UST (US Treasury yield) and the fact that now rate cuts in India are being talked about," a dealer with a state-owned bank said.

Revenue Secretary Sanjay Malhotra has been appointed the new governor of the RBI, replacing Shaktikanta Das, whose tenure ends Tuesday. Market participants were caught off guard after the announcement as earlier some media reports had speculated that Das' tenure may be extended by another year.

With the new governor in place, there have been talks in the market of an earlier rate cut to drive up growth, dealers said. It pulled the one-year dollar/rupee forward premium lower. With increased chances of a rate cut in India, market participants did not see the US-India rate differential rising too much, thus expecting a limited rise in forward premiums.

Further, US Treasury yields rose Monday ahead of US inflation figures for last month, set to be released Wednesday. "US CPI is very crucial right now, and after that the FOMC (Federal Open Market Committee) decision will be important," a dealer with a state-owned bank said. "It will be interesting to see their commentary about future course of action on rates as Trump's administration will be taking charge in January."

With a fall in the one-year dollar/rupee forward premium, a few banks purchased the greenback for forward delivery, noting a relatively lower forward premium, which limited its fall, dealers said. "Last week it went below 2.0%, but that was largely due to central bank action, so going ahead I expect (one-year dollar/rupee) forward to be higher, at about 2.25% to 2.30%," a dealer with another state-owned bank said. Last week, the RBI had conducted buy-sell swaps pulling dollar/rupee forward premiums lower.

However, some dealers were apprehensive of the forward premium rising too much, and said it may remain near 2.05%, with more clarity after a rate decision by the Fed. The US FOMC is scheduled to announce its rate decision on Dec. 18. As of today, market participants see an 89.5% chance of a 25 bps rate cut, with the rest of the chances for a status quo, as per CME FedWatch tool.

While forward premiums for longer tenures fell, premiums on shorter tenure contracts--from 1-month to 7-month--rose Tuesday. Dealers attributed the rise in shorter tenure forward premiums to banks' dollar purchases for forward delivery on behalf of importers and a few large corporates. "Importers are taking positions (buying dollars for forward delivery) at this time as rupee is expected to fall quite a bit, plus some corporates are also seeing this as a good level to pay (buying dollars for forward delivery)," a dealer with another state-owned bank said. 

At 1413 IST, the premium on the one-year exact-period dollar/rupee forward contract was 174.25 paise, against 176.50 paise on Monday. On an annualised basis, the premium was at 2.05%, as against Monday's close of 2.05%.  (Sourabh Kumar)

India Rupee:Hits record low; RBI's intervention via dollar sales limits fall

MUMBAI – The rupee was down against the dollar, falling to a record low of 84.85 after downward pressure on expectations of an early rate cut in India, dealers said. The central bank intervened in the foreign exchange market by way of dollar sales, preventing a further fall in the domestic currency, dealers added.

With Revenue Secretary Sanjay Malhotra being appointed the new governor of the Reserve Bank of India, market participants now anticipate the central bank to cut rates earlier than previously thought, dealers said. "The rupee has fallen after the announcement of the (appointment of the) new RBI governor and, since morning, there has been some selling by the central bank," a dealer with a state bank said. "I think it is going to be difficult for the rupee to fall below 85.00 a dollar at least today (Tuesday)."

As the rupee has already fallen over 10 paise from the previous close, dealers expect it to hit the mark of 85.00 a dollar as early as this week. Importers purchased the greenback, noting the fall in the rupee, which weighed on the Indian unit, dealers said. While some exporters sold dollars, a lot of them waited for a further fall in the domestic currency before placing large bets, dealers added.

Further, dealers said the US CPI data, scheduled on Wednesday, is crucial as it could provide cues on the rate trajectory in the US. The dollar index remained largely steady before the data. The index, which measures the strength of the greenback against a basket of six major currencies, was at 106.05 at 1209 IST against Monday's 106.17 and Friday's 105.97.

For the rest of the day, the rupee is likely to move in the range of 84.75-85.90 against the dollar. Dealers see strong immediate technical support for the Indian unit at 84.90 a dollar.  (Sourabh Kumar)

India Rupee: Technical Levels for rupee - Dec 10

MUMBAI – At 0900 IST, the rupee was at 84.7775 a dollar, against its previous close of 84.7300. At 1201 IST, the rupee was at 84.8500 per dollar. The following are the key support and resistance levels for the rupee as provided by leading banks and brokerages:

(Sourabh Kumar)

India Rupee: Hits record low; RBI's likely dlr sales in NDF, spot limit fall

MUMBAI – The rupee hit a record low of 84.8475 a dollar as the announcement of the appointment of a new Reserve Bank of India governor took the market by surprise, leading to expectations of a rate cut in February, dealers said. However, some public sector banks sold the greenback, likely on behalf of the RBI, in the offshore non-deliverable forwards market and the domestic spot market, which prevented the rupee from falling sharply, they said. 

"The volatility was expected since yesterday (Monday). The majority of the volatility happened in the offshore (NDF market) last night, with the rupee falling to 84.90 levels," a dealer at a state-owned bank said. 

Revenue Secretary Sanjay Malhotra has been appointed the new governor of the RBI, replacing Shaktikanta Das, whose extended tenure ends Tuesday. Market participants were caught off guard after the announcement as earlier, some media reports had speculated that Das' tenure may be extended by another year.

The decision on the appointment of a new governor has also caused investors to fear a possible shift in the central bank's intervention strategy in the foreign exchange market. The RBI's stated policy has been to intervene in the currency market to prevent excessive volatility and not target a particular level. Since last year, the RBI has been intervening aggressively, leading to minimal volatility in the exchange rate.

Further, banks rushed to purchase the greenback on behalf of importers and corporates, fearing further fall in the rupee, which exerted pressure on the Indian unit, dealers said. However, some public sector banks sold the greenback, likely on behalf of the RBI, which prevented the rupee from falling sharply. Some banks also sold the greenback for exporters, who wanted to take advantage of relatively higher dollar/rupee levels, which aided the rupee.

A rise in the offshore Chinese yuan supported the rupee. The Chinese government on Monday announced it has decided to change its monetary policy stance to "appropriately loose" next year, marking its first shift towards policy easing in 14 years. The announcement came as an attempt to boost the sluggish economy of China.

Market participants now eye the US consumer price index, due on Wednesday, for further cues on interest rate decisions by the US Federal Reserve at its next policy meeting on Dec. 18. Currently, traders are pricing in an 85.8% probability of the US Fed lowering its interest rates by 25 basis points, while they see a 14.2% chance of the central bank maintaining status quo. 

For the rest of the day, the rupee is likely to move in a range of 84.75-85.00 against the dollar. Dealers see strong immediate technical support for the Indian unit at 84.85 a dollar.  (Gowri Lakshmi)

India Rupee: Expected range for rupee - Dec 10

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

(Pratiksha and 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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