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Informist, Tuesday, Jan. 14, 2025

By Gowri Lakshmi

MUMBAI – The rupee ended at a record closing low against the dollar for the fifth consecutive session on Tuesday as banks continued to purchase the greenback on behalf of importers, dealers said. A media report that Reserve Bank of India Governor Sanjay Malhotra signalled an openness to a more flexible currency also weighed on the rupee in the last leg of the trade, they said. 

State-owned banks sold dollars, likely on behalf of the RBI, which limited losses in the Indian currency, dealers said. "The change in RBI intervention (strategy) is very evident. Right now it feels more like they (RBI) are letting the rupee catch up with other Asian currencies. With the yuan falling one day and then China announcing a new stimulus package another day, the rupee is in a dilemma along with a strengthening dollar," a dealer at a private bank said.

After falling to a lifetime low of 86.6500 a dollar during the day, the rupee settled at 86.6300 a dollar, compared to its previous close of 86.5750. The rupee fell 0.1% against the greenback, becoming the worst-performing emerging market currency after the Thai Baht.

The rupee opened slightly higher against the greenback as the dollar index eased from the over 26-month high it hit on Monday, ahead of the release of the US producer price index due later in the day and inflation for December due Wednesday, dealers said. A Dow Jones poll estimated US CPI inflation at 0.5% on month and 2.6% on year in December.

At 1530 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 109.56, compared to its previous close of 109.50 on Monday and 109.64 on Friday. The index rose to 110.18 on Monday, its highest level since Nov, 2022.

Further, banks likely aggressively sold the greenback on behalf of the RBI in the offshore non-deliverable forwards market, which also supported the rupee at opening, dealers said.

However, shortly after opening, the rupee was weighed by dollar purchases by banks on behalf of importers, who feared a further fall in the local unit, dealers said. Dealers are of the view that the rupee may fall past 86.70 a dollar in the near term and may even test its next psychologically-crucial level of 87 a dollar in the run-up to US President-elect Donald Trump assuming office on Jan. 20. So far in January, the rupee has fallen 1.2% against the dollar. 

Oil marketing companies also purchased the greenback, fearing a further rise in crude prices as crude prices continued to hover near the four-month-high hit on Monday. Oil prices rose on Monday as investors assessed the potential supply chain disruption caused by the new US sanctions against Russian oil production and distribution. At 1530 IST, the March Brent Crude contract on the Intercontinental Exchange was at $80.61 a barrel, compared to the previous close of $81.01 per barrel on Monday and $79.76 per barrel on Friday.

The rupee came under further pressure and fell to its lifetime low of 86.6500 against the dollar after media reports said that RBI Governor Malhotra indicated an openness to a more flexible rupee, dealers said. The governor has shown a willingness to allow the rupee to move more freely in line with peers in the region, while still intervening in the foreign exchange market to curb excessive moves, Bloomberg reported, citing sources. Malhotra may allow a wider gap in the closing level of the currency from the previous day's close if the situation warrants, the report said.

"The market definitely reacted to the news. It seems like the rupee will not be as protected as it used to be and could breach key levels any day. Instead of a strong hold on volatility, it might be market forces which will determine rupee levels," a dealer at a foreign bank said. 

Dealers said the central bank actively sold the greenback, initially around 86.59 a dollar, and then at around 86.65, to slow the pace of depreciation for the local unit. However, the intervention was not aggressive in nature, they said. 

FORWARDS 

The premium on dollar/rupee forward contracts erased all losses and ended higher across most tenures as banks bought dollars for forward delivery after media reports said that RBI governor had indicated that he is open to a more flexible currency, dealers said. Banks bought dollars for forward delivery on behalf of importers in the expectation that the rupee will depreciate further going ahead, they said. "Towards closing, premiums were getting paid heavily after the news on (the RBI) governor came in," said a dealer at a private bank. 

Earlier in the day, the premium on dollar/rupee forward contracts fell across most tenures as the RBI is likely to have sold forward dollars for maturity in June and December on Tuesday to nullify its spot interventions and avoid pushing out rupee liquidity, dealers said.

Since spot dollar sales drain liquidity from the banking system, the RBI conducts buy-sell swaps to replenish liquidity. A buy/sell swap entails buying dollars for immediate delivery and entering into a contract to sell these at a future date, thereby postponing the drain on systemic liquidity. Liquidity conditions have deteriorated sharply in recent weeks. On Monday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.50 trillion from INR 2.21 trillion on Sunday, as per data from the central bank.

At 1530 IST, the premium on the one-year exact-period dollar/rupee forward contract was 222.74 paise, against 219.11 paise Monday. On an annualised basis, the premium was at 2.57%, against Monday's close of 2.53%. The premium fell to a low of 2.50% earlier in the day. 

OUTLOOK 

On Wednesday, the rupee will take cues from the movement in the dollar index after the release of the producer price index, due later in the day. The rupee may also take cues from movement in crude oil prices and the offshore Chinese yuan. Dealers expect importers to continue purchasing the greenback, wary of a further fall in the rupee. 

However, they expect the central bank to step in with its dollar sales to prevent the rupee from falling sharply and curb excessive market volatility. 

During the day, the rupee is seen in a range of 86.50-86.80 a dollar, with strong technical support pegged at 86.70 a dollar.

India Rupee - World FX: Dlr index eases from 26-mo high ahead of US PPI, CPI

MUMBAI – The Dollar Index eased from the over 26-month high it hit Monday ahead of the release of the US Producer Price Index later in the day and the inflation print for December due Wednesday. A Dow Jones poll estimated last month's US CPI to be at 0.5% on month. On an annual basis, inflation is expected to be at 2.6% in December.

At 1630 IST, the Dollar Index, which measures the strength of the dollar against a basket of six major currencies, was at 109.60, compared to its previous close of 109.50 Monday and 109.64 Friday. The index rose to 110.18 Monday, its highest level since November 2022. Following the easing of the Dollar Index, the euro was up 0.1% against the dollar.

The Japanese yen fell 0.3% against the dollar. Data Tuesday showed Japan's services sector sentiment stood at 49.9 in December, up 0.5 from the previous month. Further, Bank of Japan Deputy Governor Ryozo Himino on Tuesday hinted that the central bank may hike interest rates at its monetary policy meeting concluding on Jan. 24.

The pound sterling fell 0.2% against the dollar owing to concerns about the UK's fiscal sustainability. The UK's finance ministry said last week it would maintain "an iron grip" on public finances in response to a two-day selloff in the debt markets.

The New Zealand dollar and the Australian dollar were up 0.5% and 0.2% against the greenback, respectively, after Chinese authorities announced a new economic stimulus package to support their weakening currency. China unveiled plans to improve capital flows by allowing companies to borrow more overseas and to park more dollars in Hong Kong to bolster the yuan. Any change in the Chinese economy directly influences the currencies of New Zealand and Australia due to their close bilateral trade relations.

Meanwhile, data released Tuesday showed Australian consumer sentiment dipped for a second month in January, which weighed on the currency. The Westpac-Melbourne Institute index of consumer sentiment fell 0.7% in January from December, when it had dropped 2.0%.  (Gowri Lakshmi)

India Rupee: Hits record low on reports RBI Malhotra open to flexible rupee

NEW DELHI - The rupee fell to a fresh record low of 86.6500 against the dollar Tuesday after media reports said, citing sources, that Reserve Bank of India Governor Sanjay Malhotra has indicated that he is open to a more flexible currency, dealers said. 

The governor has shown a willingness to allow the rupee to move more freely in line with peers in the region, while still intervening in the foreign exchange market to curb excessive moves, Bloomberg reported, citing sources. Malhotra may allow a wider gap in the closing level of the currency from the previous day's close if the situation warrants, the report said.

"We are seeing some panic buying (of dollars) after the news on the governor," said a dealer with a state-owned bank. However, the central bank likely intervened through dollar sales, which limited losses for the Indian unit, dealers said. 

For the rest of the day, the rupee is likely to move in a range of 86.50-86.70 against the dollar. Dealers see immediate technical support for the Indian unit at 86.65 a dollar. (Pratiksha)

India Rupee: Premiums fall as RBI likely sells fwd dollars to aid liquidity

NEW DELHI – The premium on dollar/rupee forward contracts fell across most tenures as the Reserve Bank of India is likely to have sold forward dollars for maturity in June and December on Tuesday to nullify its spot interventions and avoid pushing out rupee liquidity, dealers said.

"We are seeing receiving in the June and December contracts. This has created some volatility in forwards," said a dealer at a state-owned bank. "Forwards may remain depressed for some time."

The rupee fell to a new lifetime low of 86.6100 a dollar Tuesday. The central bank is likely to have sold dollars to prevent the Indian unit from depreciating sharply, according to dealers. Since spot dollar sales drain liquidity from the banking system, the RBI conducts buy-sell swaps to replenish liquidity. A buy/sell swap entails buying dollars for immediate delivery and entering into a contract to sell these at a future date, thereby postponing the drain on systemic liquidity.

Liquidity conditions have deteriorated sharply in recent weeks. On Monday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.50 trillion from INR 2.21 trillion on Sunday, as per data from the central bank.

Meanwhile, weakness in the Indian currency prompted some banks to buy dollars for forward delivery, which limited the fall in premiums, dealers said. The rupee fell past the psychologically-crucial level of 86 a dollar Monday and posted its worst one-day fall in nearly two years with a fall of 0.7%.

Market participants now await the release of the US Producer Price Index data, due after market hours Tuesday, and the US CPI data for December, due Wednesday, for further cues on the US interest rate outlook. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries.

At 1416 IST, the premium on the one-year exact-period dollar/rupee forward contract was 217.74 paise, against 219.11 paise Monday. On an annualised basis, the premium was at 2.51%, against Monday's close of 2.53%. The premium fell to a low of 2.50% earlier in the day.  (Pratiksha)

India Rupee: Steady as likely RBI dollar sales offset importers' dollar buys

MUMBAI – The rupee was largely steady against the dollar Tuesday as banks' dollar sales, likely on behalf of the Reserve Bank of India, offset the impact of strong dollar demand from importers, dealers said.

"The RBI is active today (Tuesday) unlike what we saw yesterday (Monday) when they (RBI) had let the rupee test the waters. Today they're (RBI) trying to keep the rupee range-bound and not letting it fall past a level. They are back at protecting certain levels," a dealer at a private bank said. 

Dealers said the RBI likely sold dollars around 86.59 a dollar, in order to prevent the Indian unit from hitting a fresh lifetime low. However, its intervention was not very aggressive in nature, they said. 

Earlier in the day, the rupee touched its lifetime low of 86.5900 a dollar, previously hit on Monday, as banks persistently purchased the greenback on behalf of importers, who feared a further fall in the rupee, dealers said. Dealers are of the view that the rupee may fall past 86.70 a dollar in the near term and may even test its next psychologically-crucial level of 87 a dollar in the run-up to US President-elect Donald Trump assuming office on Jan. 20.

Earlier in the day, some state-owned banks' dollar buying ahead of daily reference rate fixing also weighed on the Indian unit, some dealers said. Noting the RBI's active intervention on Tuesday, some dealers expect the central bank to continue defending the rupee throughout the day. 

For the rest of the day, the rupee is likely to move in a range of 86.40-86.70 against the dollar. Dealers see immediate technical support for the Indian unit at 86.60 a dollar.  (Gowri Lakshmi)

India Rupee: Technical Levels for rupee - Jan 14

MUMBAI – At 1155 IST, the rupee was at 86.5625 per dollar. At 0900 IST, the rupee was at 86.4925 a dollar against its previous close of 86.5750. Following are the key support and resistance levels for the rupee as provided by leading banks and brokerages:

(Gowri Lakshmi and Pratiksha)

India Rupee: Tad up as dollar index eases from over 2-yr high; volumes low

MUMBAI – The rupee traded slightly higher against the dollar Tuesday as the dollar index retreated from an over 26-month high, dealers said. Further, a rise in domestic equities gave the local unit a boost, dealers said. At 0928 IST, the benchmark indices, Nifty 50 and Sensex, were up 0.5% each.

Dealers also speculated that banks may have sold the greenback, likely on behalf of the Reserve Bank of India, in the offshore non-deliverable forwards market, which prevented the rupee from falling. "The market won't be as volatile as yesterday (Monday), the rupee is seen on the upside. Trade volumes are subdued and will likely remain between 86.40-86.65 for the day," a dealer at a state-owned bank said. Trade volume in the currency market is subdued due to a public holiday in many parts of the country on account of Makar Sankranti. 

The rupee breathed a sigh of relief as the dollar index retreated from the 26-month high of 110.18, hit on Monday. Market participants now await the release of the US CPI data, due Wednesday, dealers said. A Dow Jones poll estimated the CPI to be at 0.5% on month. On an annual basis, inflation is expected to be at 2.6% in December. 
 

At 0927 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 109.56, compared to the previous close of 109.50 on Monday and 109.64 on Friday. A rise in other Asian currencies also aided the rupee. 

For the rest of the day, the rupee is likely to move in a range of 86.40-86.65 against the dollar. Dealers see immediate technical support for the Indian unit at 86.50 a dollar.  (Gowri Lakshmi)

India Rupee - Asia FX: Most up as dollar index eases from over 2-year high

MUMBAI – Most Asian currencies traded higher against the dollar Tuesday due to a retreat in the dollar index from over a two-year-high of 110.18 it hit on Monday. At 0840 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 109.63, compared with the previous close of 109.50 on Monday and 109.64 on Friday.

Market participants now await the release of the US consumer price index due Wednesday. A Dow Jones poll estimated the CPI to be at 0.5% on month, while on an annual basis the inflation is expected to be at 2.6% in December.
 

The Philippines peso and the Indonesian rupiah were up 0.3% each against the greenback. At the meeting on Wednesday, the Indonesian central bank is expected to keep the benchmark rate steady at 6.0%, given the announced focus on maintaining a strong Indonesian currency, as per reports. In the last monetary policy meeting statement, officials iterated the need to maintain currency stability in times of economic uncertainty.

The South Korean won was up 0.3% against the US unit. The Bank of Korea is likely to lower its interest rate by 25 basis points at its monetary policy committee meeting, scheduled on Thursday, which limited the upside movement in the South Korean currency. The Taiwan dollar and the Malaysian ringgit were up 0.2%. 

The Thai Baht and Chinese yuan traded flat. On Monday, data from China showed that the country's exports accelerated, and the trade surplus rose to $104.8 billion in December. China's exports rose 10.7% on year while imports rose 1.0%. Further, on Monday, Chinese authorities announced more measures to support the weakening yuan, unveiling plans to improve capital flows by allowing companies to borrow more overseas and to park more dollars in Hong Kong to bolster the yuan.  (Gowri Lakshmi)

India Rupee: Expected range for rupee - Jan 14

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:

(Sourabh Kumar and Pratiksha)

End

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

Edited by Saji George Titus

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