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Informist, Friday, Jan. 3, 2025

By Gowri Lakshmi

MUMBAI – The rupee ended at a record-closing low against the dollar for the ninth consecutive trading day as the dollar index soared to its highest level in more than two years and the offshore Chinese yuan weakened, dealers said. Banks' dollar purchases on behalf of importers and foreign portfolio investors also weighed on the Indian currency, they said. 

"Today's pressure (on the rupee) was completely from the dollar index. Further, as (Donald) Trump's inauguration nears, we can see the dollar strengthening even more," a dealer at a state-owned bank said. "Some FPIs also sold after they saw the dollar flying to its highest. Tensions in West Asia and Russia persisted, putting oilers (oil importers) and importers in some panic as well."

However, the sale of dollars by state-owned banks, likely on behalf of the Reserve Bank of India, ensured that the Indian unit did not hit a record low and curbed excessive volatility, dealers said. 

After falling to 85.8025 a dollar during the day, just a whisker away from its record low of 85.8075 on Dec. 27, the rupee settled at 85.7700 a dollar, compared to its previous close of 85.7525. The Indian unit depreciated 0.3% against the dollar this week.

After trading at around 85.81-85.83 a dollar in the offshore non-deliverable forwards market, the rupee opened steady in the domestic spot market at 85.7750 per dollar as banks sold the greenback, likely on behalf of the RBI in the offshore NDF segment. Shortly afterwards, the central bank likely stepped in to intervene in the spot market as well, which helped offset the impact of a surge in the dollar index, dealers said.

The dollar index surged to an over-two-year high after data on Thursday showed a strong labour market in the US. The weekly initial jobless claims data for the week ending Dec. 27 showed that the number of Americans filing for unemployment benefits fell to an eight-month-low of 211,000, against a forecast of 222,000 in a Reuters poll. The strong economic data boosted market participants' expectations that the US Federal Reserve will likely opt for a shallow pace for rate cuts this year.

At 1530 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 109.01, compared to its previous close of 109.25 on Thursday and 108.48 on Tuesday. The dollar index had risen to 109.53 on Thursday, its highest level since November 2022.

Some banks also rushed to purchase the greenback on behalf of importers, wary of a further fall in the rupee going ahead, which exerted pressure on the local unit, dealers said. However, importers were not aggressively purchasing dollars as most of them had already stocked up dollars for their near-term requirements in the past few weeks, some dealers said. 

Dealers also said that banks continued to buy dollars on behalf of foreign portfolio investors, looking to exit the Indian stock market, which also weighed on the rupee. Equity benchmark indices, the Nifty 50 and the Sensex ended 0.8% and 0.9% lower, respectively, on Friday. 

The rupee came under further pressure towards the last leg of the day and fell to the day's low as the Chinese yuan weakened against the US currency, dealers said. The Chinese yuan fell 0.3% against the greenback after media reports said that the People's Bank of China is likely to proceed with an interest rate cut at an 'appropriate time' this year to boost the sluggish economy. 

However, the RBI likely intervened through dollar sales throughout the day and prevented the rupee from hitting a record low. The RBI steadfastly sold dollars at around 85.78-85.79 per dollar during the day, according to dealers. "They (RBI) are targeting a level again," said a dealer at a foreign bank. "But I feel after 85.80 breaks, it will not be a gradual fall. We will see a dip to 86 quickly, just like the last big figure." 

Noting the central bank's persistent intervention, some banks sold the greenback on behalf of exporters, who wanted to take advantage of the relatively higher dollar/rupee levels, which provided some cushion for the local unit, dealers said. However, most exporters are still waiting for the rupee to fall below the 85.80 level to sell their dollar holdings. "Exporters are just selling at a normal pace right now. They are optimistic about the fall in the rupee after Trump comes into power. We can see the rupee breaching the big figure (86 a dollar) in two weeks, alongside Trump's inauguration," a dealer at a state-owned bank said.

FORWARDS

The premium on the one-year dollar/rupee forward contract ended lower on Friday as some banks and a large corporate sold dollars for forward delivery, noting the relatively higher levels, dealers said. Premium on the one-year dollar/rupee forward rose to near a 27-month high on Thursday. "There was huge receiving from a large corporate, which caused the levels to fall. We saw some profit booking also," said a dealer at a private bank. 

Premiums also fell as the banking system liquidity deficit narrowed, dealers said. According to RBI data, the liquidity deficit narrowed to INR 674.45 billion on Thursday from INR 1.05 trillion a day before, due to inflows from the government's month-end spending.

At 1530 IST, the premium on the one-year exact-period dollar/rupee forward contract was 217.11 paise, against 222.09 paise on Thursday. On an annualised basis, the premium was at 2.53%, against Thursday's close of 2.57%. 

OUTLOOK 

On Monday, the rupee will take cues from movements in the dollar index and offshore Chinese yuan, dealers said. Market participants are awaiting the US manufacturing PMI due later in the day for further cues on the US interest rate trajectory.

Dealers expect importers to continue purchasing the greenback, which is likely to weigh on the rupee. However, they expect the RBI to continue intervening through dollar sales to prevent the rupee from falling sharply and testing the psychologically-crucial level of 86-per-dollar.

Volume in the currency market is expected to pick up from Monday onwards as most traders are expected to be back from New Year holiday. The rupee is seen in a range of 85.60-85.90 a dollar, with strong technical support pegged at 85.80 a dollar.

India Rupee - World FX: Swiss Franc up 0.4% on safe-haven flows

MUMBAI – The Swiss franc was up 0.4% against the dollar on safe-haven flows owing to heightened geopolitical tensions amid reports that US President Joe Biden discussed plans to attack Iran's nuclear facilities before Donald Trump takes office on Jan. 20. 

The Canadian dollar was down 0.1% against the greenback. However, losses in the currency were limited as the country's purchasing managers' index rose to 52.2 in December, the highest level since February 2023. 
 

The Australian dollar was up 0.2% and the New Zealand dollar was up 0.1% against the dollar after reports from the Financial Times showed that the People's Bank of China may cut rates this year, as part of its larger policy shift. Any change in the Chinese economy will influence the currencies of Australia and New Zealand due to their close bilateral trade relations.

The euro was slightly higher, rising 0.2% against the US currency, after falling to over a two-year low on Thursday. The dollar index eased in early European trading hours from the over-two-year high it hit on Thursday. The index had hit a high of 109.53 on Thursday after data showed a solid labour market in the US. The initial jobless claims data for the week ending Dec. 27 showed that the number of Americans claiming unemployment benefits fell to an eight-month low of 211,000, against the forecast of 222,000 in a Reuters poll. It reinforced market participants' expectations that the US Federal Reserve may opt for a shallower pace of monetary policy easing cycle in 2025.

At 1634 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 109.11, compared to 109.25 on Thursday and 108.48 on Tuesday. Market participants are awaiting the US manufacturing Purchasing Managers index, due later in the day.

The pound sterling was up 0.1% against the greenback. However, gains in the currency were limited after the UK PMI on Thursday recorded the sharpest contraction in almost a year. The UK manufacturing PMI fell to 47.0 from 48.0 in November. A reading below 50 in the index indicates a contraction in manufacturing activities, while a reading above indicates an expansion.  (Gowri Lakshmi)

India Rupee: Premium falls on forward dollar sales at higher levels

MUMBAI – The premium on the one-year dollar/rupee forward contract, which rose to near a 27-month high on Thursday, fell on Friday as some banks and corporates sold dollars for forward delivery at relatively higher levels, dealers said.

"There is some receiving, continuing from yesterday (Thursday)," a dealer with a state-owned bank said. Forward premiums were down across tenures. A few dealers also speculated that the Reserve Bank of India had sold the greenback for forward delivery, bringing forward premiums down. In the past few weeks, the central bank has intermittently been conducting dollar/rupee buy/sell swaps likely to nullify its spot interventions and avoid pushing out rupee liquidity, as per market players.

The banking system liquidity deficit has also narrowed, aiding the downward movement in forward premiums, dealers said. According to RBI data, the liquidity deficit narrowed to INR 674.45 billion on Thursday from INR 1.05 trillion a day before. The deficit narrowed due to inflows from the government's month-end spending, dealers said.

However, market participants said the forward premiums are likely to remain higher, on expectations that some banks will continue to take advantage of the arbitrage opportunity between the dollar/rupee offshore non-deliverable forward and onshore levels, dealers said. This was the primary reason for the rise in forward premiums in the past couple of weeks, apart from importers purchasing dollars for forward delivery. Importers have recently become active in the forward market, noting increased volatility and a relatively sharp fall in the rupee in the spot market, dealers said. 

At 1447 IST, the premium on the one-year exact-period dollar/rupee forward contract was 217.71 paise, against 222.09 paise on Thursday. On an annualised basis, the premium was at 2.54%, against Thursday's close of 2.57%.  (Sourabh Kumar)

India Rupee: Remains steady; RBI's likely active dlr sales avert record low

MUMBAI – The rupee remained steady against the greenback on Friday as the impact of dollar purchases on behalf of importers and strength in the dollar index was nullified by sales of the greenback by banks, likely on behalf of the Reserve Bank of India, dealers said. The local unit has moved in a range of just 6 paise so far during the day.  

State-owned banks sold the greenback persistently at around 85.79 a dollar, likely on behalf of the central bank, which prevented the rupee from hitting a record low, dealers said. The rupee hit a low of 85.7975 a dollar during the day, just a whisker away from its lifetime low of 85.8075 a dollar, touched on Dec. 27. "It seems that they (RBI) are trying to protect 85.80 (a dollar) for the time being. Everybody knows it will break now or later, it has to," said a dealer at a private bank.

Dealers said the RBI's intervention through dollar sales was not aggressive in nature. They expect the central bank to continue to keep the rupee's depreciation in check for the rest of the day. "There is not much movement expected in the market today. We may see the dollar/rupee settling 3-5 paise higher, that's it," a dealer at another state-owned bank said. 

Dealers said banks continued to purchase dollars on behalf of importers, wary of further fall in the rupee going ahead, which exerted pressure on the rupee. The rupee has fallen 0.3% against the dollar so far this week. "Importers' buying (of dollars) pressure is not heavy today. Most of the importers have already bought the dollars required," another dealer at a public-sector bank said.

The dollar index surged to an over two-year-high after data on Thursday indicated a strong US labour market, reinforcing market participants' expectations of a slower rate-cut cycle by the US Federal Reserve. Data showed that the number of Americans filing for unemployment benefits declined to 211,000 last week, the lowest in eight months, against the forecast of 222,000 in a Reuters poll.

At 1345 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 109.09, against 109.25 on Thursday and 108.48 on Tuesday. The index rose to 109.53 on Thursday, its highest level since November 2022. Further, a fall in other Asian currencies against the dollar, particularly the offshore Chinese yuan, also weighed on the local unit, dealers said.

For the rest of the day, the rupee is likely to move in a range of 85.70-85.85 against the dollar. Dealers see immediate technical support for the Indian unit at 85.80 a dollar.  (Gowri Lakshmi) 

India Rupee: Technical Levels for rupee - Jan 3

MUMBAI – At 1145 IST, the rupee was at 85.7575 per dollar. At 0900 IST, the rupee was at 85.7750 a dollar against its previous close of 85.7525. Following are the key support and resistance levels for the rupee as provided by leading banks and brokerages:

(Sourabh Kumar and Gowri Lakshmi)

India Rupee: Steady as likely RBI intervention offsets strength in dlr index

MUMBAI – The rupee was largely steady against the greenback Friday as dollar sales by banks, likely for the Reserve Bank of India, offset the impact of a surge in the dollar index, dealers said. Banks sold the greenback, likely on behalf of the RBI, in the offshore non-deliverable forwards and the domestic spot market, which prevented the rupee from hitting a record low, they said. The rupee hit a lifetime low of 85.8075 a dollar on Dec. 27. 

"We expected the rupee to open really low at around 85.82-83 levels, but probably some intervention bought it (rupee level) down," a dealer at a state-owned bank said. "The dollar has shot up, and so did the dollar/rupee pair (in the offshore)," he added. The rupee was trading around 85.81-85.83 a dollar in the offshore NDF market right before opening at 85.7750 a dollar in the domestic spot market, dealers said.  

The dollar index surged to an over-two-year high of 109.53 on Thursday after data showed that the number of Americans filing for unemployment benefits fell to an eight-month low of 211,000 last week, below the 222,000 estimate of economists polled by Reuters, indicating a strong labour market in the US. This reinforced the market participants' expectations that the US Federal Reserve would opt for a slower interest rate-cut path.

At 1011 IST, the dollar index, which measures the strength of the dollar against six major currencies, was at 109.18, against 109.25 on Thursday and 108.48 on Tuesday. The index rose to 109.53 on Thursday, its highest level since November 2022.

Dealers said banks rushed to purchase the greenback on behalf of importers, which also exerted pressure on the local unit. Importers are persistently stocking up dollars, because they fear further fall in the rupee, as the dollar is likely to strengthen further under incoming president Donald Trump in another two weeks. 

A fall in domestic equities also weighed on the rupee. At 1011 IST, the benchmark Sensex and the Nifty 50 were down 0.6% and 0.5%, respectively.

During the day, the rupee is likely to move in a range of 85.70-85.85 against the dollar. Dealers see immediate technical support for the Indian unit at 85.80 a dollar.  (Gowri Lakshmi) 

India Rupee - Asia FX: Most dn as dlr index at over 2-yr high post econ data

NEW DELHI – Most Asian currencies fell against the dollar as the dollar index rose to its highest level in over two years on Thursday after the latest economic data suggested that the US labour market remained resilient. 

Data on Thursday showed that the number of Americans filing new applications for unemployment benefits fell to an eight-month low of 211,000 last week, below the 222,000 estimate of economists polled by Reuters. This reinforced market participants' expectations that the US Federal Reserve would go for a slower interest rate-cut cycle.

At 0850 IST, the dollar index, which measures the strength of the dollar against six major currencies, was at 109.16, against 109.25 on Thursday and 108.48 on Tuesday. The index rose to 109.53 on Thursday, its highest level since November 2022.

The Philippine peso fell 0.5% against the dollar, the worst hit amongst its peers. The Indonesian rupiah fell 0.2% against the dollar. Bank Indonesia intervened in the currency market on Thursday to stabilise the rupiah after President Prabowo Subianto's surprise decision to pare back a tax hike exerted significant pressure on the currency. The Malaysian ringgit and Thai baht were both down 0.1%. 

Bucking the trend, the South Korean won rose 0.5% against the US unit after the government released policy plans on Thursday to boost foreign inflows for stability in financial markets and spur domestic demand amid faltering consumer confidence. The economy faces mounting uncertainty from an unprecedented political crisis after its president briefly imposed martial law in December, which prompted public outrage and led to his impeachment. (Pratiksha)

India Rupee: Expected range for rupee - Jan 3

MUMBAI – Following are the expected support and resistance levels for the rupee on Friday, 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 Saji George Titus

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