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Informist, Thursday, Dec. 26, 2024

By Gowri Lakshmi

MUMBAI – The rupee ended at a record closing low for the third consecutive trading day as banks persisted in purchasing the greenback on behalf of importers, dealers said. Despite the intervention from the Reserve Bank of India, the rupee fell to its lifetime low of 85.2800 against the dollar during the day.

"Volumes are comparatively thin due to the holiday season; however, the general sentiment and market movement is buying (of dollars), which puts the rupee under pressure," a dealer at a private bank said. After moving in a range of just under 7 paise, the rupee settled at 85.2625 a dollar, compared to its previous close of 85.2000 on Tuesday.

The rupee was trading around 85.2600 a dollar in the offshore non-deliverable forward market a few minutes before opening at 85.2250 on the domestic spot market. Dealers speculated that the RBI may have intervened in the offshore forward market, before intervening in the spot market, to prevent the rupee from falling sharply.

However, as soon as the market opened, banks bought dollars on behalf of oil marketing companies and other importers who rushed to purchase the greenback, wary of a further fall in the rupee, dealers said.

The Dollar Index was firm, and hovered near 2-year highs hit last week as investor sentiments were still driven on expectations of a slower pace of policy easing by the US Federal Reserve next year, compared to other central banks. Dealers expect the dollar to continue strengthening, which will put the rupee under severe pressure. 

At 1530 IST, the Dollar Index, which measures the strength of the dollar against six major currencies, was at 108.16, compared to its previous close of 108.12 on Tuesday and 108.08 on Monday.

Further, the local unit was also weighed down by foreign portfolio investors exiting Indian equities, dealers said. The Nifty 50 ended slightly higher Thursday, while the BSE Sensex ended flat.

Dealers said that as the rupee came under intense pressure, the RBI is likely to have stepped in with dollar sales, preventing a sharp fall in the rupee. However, it could not prevent the rupee from hitting a fresh record low against the dollar. Dealers said the central bank's intervention was not aggressive, and they cited multiple reasons for the same, including falling foreign exchange reserves and a rise in the real effective exchange rate of the rupee.

They said the central bank's intervention was "mild", and just enough to curb excessive market volatility. "The central bank has intervened in the spot market," a dealer with a private bank said, "(but) they now do not seem to intervene aggressively to keep the rupee at one level. Rather, their intervention is to allow for a gradual fall in the rupee."

On Tuesday, data from the RBI showed that the rupee's REER against a basket of 40 currencies, in terms of trade-based weights, rose to 108.14 in November, the highest level in over 20 years. It was 107.20 in October. "They (the RBI) seem to allow the rupee to fall now that their reserves are low and with REER rising, and I think in the coming days, you will see a gradual fall, without any hard stop," another dealer with a private bank said.

Dealers said some banks also sold the greenback on behalf of exporters, who wanted to take advantage of the higher dollar/rupee levels, providing some support to the local unit. "Exporters are active since it (the rupee) fell below 85.20 a dollar, but the momentum has not picked up yet. Some (exporters) are still waiting, on expectations of a further fall," a dealer at a state-owned bank said. 

FORWARDS

The premium on the one-year dollar/rupee forward contract ended sharply up at a near-12-week high as some banks purchased dollars for forward delivery, taking advantage of the arbitrage opportunity between the dollar/rupee onshore forward and offshore non-deliverable forward levels, dealers said. 

While in the spot market the rupee fell to a lifetime low of 85.2800 a dollar Thursday, in the offshore market, the Indian currency fell over 85.40 a dollar on Wednesday, when most financial markets were closed for Christmas. A relatively high liquidity deficit in the banking system also pushed premiums higher, dealers said.

The rise in premiums was, however, limited, as some banks sold dollars for forward delivery, for their overseas branches and for corporations, to meet demand for funds during the end of the year. Some banks also sold dollars for forward delivery to take advantage of relatively higher forward premiums.

Some dealers speculated that the RBI sold dollars for forward delivery, possibly to nullify its spot interventions and avoid a further rupee liquidity deficit.

At 1530 IST, the premium on the one-year exact-period dollar/rupee forward contract was 199.00 paise, against 194.00 paise Tuesday. On an annualised basis, the premium was at 2.33%, against Tuesday's close of 2.26%.

OUTLOOK

On Friday, the rupee will take cues from movement in the dollar index and crude oil prices, dealers said. However, trade volume is expected to remain largely lacklustre due to the holiday season. 

Dealers expect importers to continue purchasing dollars in the expectation that the rupee may fall further, which may put pressure on the Indian currency. They also said that to maintain export competitiveness, the rupee is likely to see a gradual fall, with mild intervention from the RBI only to contain the volatility.

They also expect some exporters to sell the greenback, which may aid the rupee. The rupee is seen in a range of 85.20-85.35 a dollar, with strong technical support pegged at 85.30 a dollar.

India Rupee - World FX: Dollar index near 2-yr high on Fed rate cut outlook

MUMBAI – The dollar index strengthened on Thursday, hovering near the over 2-year-high hit last week, on expectation of a slower pace of monetary policy easing by the US Federal Reserve, compared to other central banks. 

Last week, Fed Chair Jerome Powell prepared markets for fewer rate cuts next year at the central bank's last policy meeting of the year. At 1438 IST, the dollar index, which measures the strength of the dollar against six major currencies, was at 108.22, compared to its previous close of 108.12 on Tuesday and 108.08 on Monday.

The Japanese yen was flat against the dollar amid thin trade volume as most markets across the world were shut on account of Boxing Day. Data on Wednesday showed that Japan's corporate service inflation rose 3.0% in November, compared to 2.9% rise in October. On Thursday, a Reuters report said that Japan plans to announce a record $735 billion budget for the next financial year, aimed at increasing social security and debt-servicing expenses.

Markets in Europe, including London, Germany, Switzerland were shut on account of Boxing Day, while in Asia-Pacific, Australian and New Zealand markets were shut. The Canadian dollar was down 0.1% against the US unit.  (Gowri Lakshmi)

India Rupee: At record low as importers buy dlrs; RBI steps in to limit fall

MUMBAI – The rupee fell to a lifetime low of 85.2800 against the dollar on Thursday as banks continuously purchased dollars on behalf of oil marketing companies and other importers, who wanted to meet their month-end payment obligations, dealers said.

The Indian unit was also weighed down by dollar purchases by banks on behalf of foreign portfolio investors, who looked to exit the Indian market, according to dealers. "The selling trend by FIIs (foreign institutional investors) has been there for 2 months now. I think it is still not done yet. That is definitely weighing on the rupee," a dealer at a state-owned bank said.

However, some banks stepped in to sell dollars, likely on behalf of the Reserve Bank of India, which prevented the local unit from falling sharply and curbed excessive volatility, they said. However, the central bank's intervention was termed as 'mild' in nature by multiple dealers. "They (RBI) are just holding the level, and nothing else. The depreciation (in the rupee) is inevitable at this point," said a dealer at a private bank. 

Some exporters also sold the greenback to take advantage of the relatively higher dollar-rupee levels, which also provided some cushion to the local unit. "Some of the exporters are selling, the rupee will likely settle at 85.30 as there will be heavy intervention (by the RBI). Then, the fall in the rupee will likely be limited and gradual," a dealer at another state-owned bank said. However, most exporters kept on the sidelines and refrained from selling dollars around the current levels, as they expect the rupee to depreciate further going ahead, they said. 

For the rest of the day, the rupee is likely to move in a range of 85.10-85.30 against the dollar. Dealers see strong immediate technical support for the Indian unit at 85.30 a dollar.  (Gowri Lakshmi)

India Rupee: Onshore-offshore arbitrage lifts premium to over 11-week high

MUMBAI – The premium on the one-year dollar/rupee forward contract rose sharply to an over 11-week high Thursday as some banks purchased dollars for forward delivery, taking advantage of the arbitrage opportunity between the dollar/rupee onshore forward and offshore non-deliverable forward levels, dealers said. 

"I think premiums are up largely due to arbitrage trade, and since the overall volumes are low, the effect is more pronounced," a dealer with a private bank said. 

The forward premiums have picked up this month, largely as banks took advantage of the arbitrage opportunity between the onshore forward and offshore non-deliverable forward dollar/rupee levels, dealers said. While in the spot market, the rupee has fallen to a lifetime low of 85.2800 a dollar on Thursday, in the offshore market, the Indian currency fell over 85.40 a dollar on Wednesday, when most financial markets were closed on account of Christmas. 

On Thursday, the one-year exact-period dollar/rupee forward premium, on an annualised basis, rose 9 basis points to 2.35% at 1301 IST, against Tuesday's close of 2.26%. It was at 200.50 paise, against 194.00 paise on Tuesday.

Further, a relatively high liquidity deficit in the banking system also pushed premiums higher, dealers said. According to the Reserve Bank of India data, the liquidity deficit was at INR 2.12 trillion on Wednesday. 

The rise in premiums was, however, limited, as some banks sold dollars for forward delivery, for their overseas branches and for corporates, to meet demand for funds during the end of the year. Some banks also sold dollars for forward delivery to take advantage of relatively higher forward premiums. The overall volumes in the market were low this week, with many dealers on leave for Christmas and New Year.

The yield on the benchmark 10-year US Treasury note was unchanged on Tuesday. Premiums on the forward of a currency pair are reflective of the interest rate differential between the two countries.  (Sourabh Kumar)

India Rupee: Technical Levels for rupee - Dec 26

MUMBAI – At 1205 IST, the rupee was at 85.2625 per dollar. At 0900 IST, the rupee was at 85.2250 a dollar against its previous close of 85.2000. The following are the key support and resistance levels for the rupee as provided by leading banks and brokerages:

(Pratiksha, Sourabh Kumar, and Gowri Lakshmi)

India Rupee: Falls to record low on banks' dollar purchases for importers

MUMBAI – The rupee fell to a record low of 85.2550 against the dollar on Thursday as banks purchased the greenback on behalf of importers, dealers said. Some dealers speculated that the Reserve Bank of India might have sold dollars in the spot market, albeit in a small quantum, to prevent the rupee from falling sharply.

"The market is moving toward the buying side, and we can expect the rupee to fall to 85.30 (a dollar) easily today (Thursday), a dealer at a state-owned bank said. "If it breaches (85.30 a dollar) then it can fall till 85.35-85.37."  

The rupee came under pressure as importers rushed to purchase the greenback, fearing a further sharp fall in the domestic unit due to a firm dollar index. The US dollar continues to receive support from chances of a reduced quantum of rate cuts by the US Federal Reserve next year.

At 0945 IST, the dollar index, which measures the strength of the dollar against six major currencies, was at 108.15, compared to 108.12 on Tuesday and 108.08 on Monday.

Some dealers speculated that the RBI might have also intervened in the offshore non-deliverable forwards markets to prevent the rupee from falling sharply during opening. They said the RBI intervention was, however, not aggressive. On Wednesday, when markets were closed for Christmas, the rupee fell to around 85.41 a dollar in the offshore market.

During the day, the rupee is likely to move in a range of 85.15-85.35 against the dollar. Dealers see strong immediate technical support for the Indian unit at 85.30 a dollar.  (Gowri Lakshmi)

India Rupee - Asia FX: Mixed; South Korean won dn on hope of rate cut in 2025

MUMBAI – Asian currencies were mixed against the US dollar Thursday amid low trade volumes due to the holiday season. The dollar index remained firm near a two-year high as a slower pace of monetary policy easing continues to provide support to the US unit. 

The South Korean won was down 0.4% against the dollar after the country's central bank on Wednesday said it plans to lower its benchmark rates further next year due to growing political instabilities and other downside risks globally. "The BoK will take increased political uncertainties, tougher competition (with global rivals) in (the country's) major industries, and expected changes in the global trading markets into account when making rate decisions," the central bank said in a report.

The Thai baht was down 0.1% against the US unit as a tussle between the Bank of Thailand and the central government over interest rates continues. While the central government pushes for an interest rate cut to stimulate the sluggish economy, the central bank is of the notion that the economy is still recovering, albeit unevenly.

The Taiwan dollar and the Chinese yuan were each down 0.1% against the greenback. The Indonesian rupiah was flat against the US dollar. 

The Philippines peso was up 0.8% against the dollar. However, gains in the currency were limited as the governor of the central bank, Eli Remolona, said in an interview with Bloomberg TV that the central bank was open to cutting rates at its first policy meeting in 2025, and was closely monitoring geopolitical developments. 

The Malaysian ringgit was up 0.4% against the greenback, after government reports showed sustained growth in the Malaysian economy. "Malaysia's economy sustained strong growth in the first three quarters of 2024, expanding by 5.2% from January to September," Mohd Uzir Mahidin, Malaysia's chief statistician, said.

The dollar index remained firm amid lower volumes globally, as market participants were still digesting the news of a slower pace of monetary policy easing by the US Federal Reserve, compared to other central banks. At 0933 IST, the dollar index, which measures the strength of the dollar against six major currencies, was at 108.12, unchanged from its previous close. It was at 109.08 on Monday.  (Gowri Lakshmi) 

India Rupee: Expected range for rupee - Dec. 26

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

(Pratiksha, Sourabh Kumar, and Gowri Lakshmi)

End

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

Edited by Rajeev Pai

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