Informist, Wednesday, Sep 29, 2021

By Arushi Jain

MUMBAI – The rupee fell against the dollar today after the US unit surged globally in European trade as investors were concerned that the US Federal Reserve will start to withdraw policy support amid a slowdown in economic recovery, said dealers.

At 1642 IST, the dollar index, which measures the US currency against six other major units, was at 93.85 compared with 93.77 on Tuesday. It was at 93.38 on Monday.

The US currency moved to its highest level since Nov 2020 and the dollar index surged to as much as 93.95 today.

Today, the rupee settled at 74.1475 a dollar compared with 74.0400 a dollar at 1530 IST on Tuesday.

The local unit opened down at 74.1600 a dollar tracking equity indices in Asia that plunged in early trade due to an overnight slump in US stocks as investors were worried about global economic recovery.

The concerns emerged after data released on Tuesday showed profit growth in China's industrial segment slowed for the sixth straight month in August.

This comes at a time when China grapples with a power crunch that has impacted its economic output, which pushed investors out of Chinese stocks vulnerable to factory shutdowns. The energy troubles follow turmoil in China's property sector as investors closely monitor movements related to a likely debt default by real estate developer Evergrande.

Further, consumer confidence in the world's biggest economy unexpectedly fell in September to its lowest since February due to the rise in COVID-19 cases this month, which led to concern about the economy's near-term prospects globally.

The Nifty 50 and the Sensex ended down more than 0.2% and 0.4%, respectively.

While the US Treasury yields and Brent crude oil price eased off from monthly highs on Tuesday, they remained elevated and weighed down the Indian unit, said dealers.

US Treasury yields have surged since last week after the Fed's hawkish comments led investors to bet on a sooner-than-expected normalisation of the Fed's loose monetary policy stance, also as inflation starts to look stickier, said dealers.

At 1642 IST, yields on the 10-year US bond were at 1.50% compared with 1.54% on Tuesday and 1.48% on Monday.

Meanwhile, Fed Chair Jerome Powell on Tuesday said there is still a long way to go to achieve maximum employment and that they 'have all but met' the test for the bond-pandemic stimulus reduction. Powell added that 'even with taper (the Fed) would be adding accommodation until mid-year next year.

The Indian currency fell to the day's low of 74.2600 a dollar.

However, towards the second half of the trading session, foreign banks stepped in to sell dollars for overseas investments into Indian companies raising funds through various means, which limited a sharp fall in the Indian currency, dealers said.

Aditya Birla Sun Life Asset Management launched its three-day initial public offer today to raise nearly $410 mln. Bank of India was also said to have raised 18 bln rupees through a tier-II bond issue.

HDFC also announced on Tuesday that it will raise up to 60 bln rupees through secured redeemable, non-convertible debentures today.

The day's high for the rupee was 74.0850 a dollar.

"73.85/$1 will now act as support for the (USD/INR) pair while 74.30/$1 will act as immediate resistance," said a dealer with a brokerage. "Import payments for up to a quarter should be hedged at any level below 74.00/$1 and exporters can wait for 74.30 and above."

FORWARDS

The premium on dollar/rupee forwards contracts ended lower because banks sold dollars for forward delivery on behalf of exporters, dealers said.

On an annualised basis, premium on the one-year, exact-period dollar/rupee contract was at 4.38%, against 4.41% on Tuesday. The premium was at 326.86 paise, compared with 326.50 paise on Tuesday.

OUTLOOK

On Thursday, the rupee may take opening cues from overnight movement in the dollar index and US Treasury yields.

Banks are expected to place fresh bets in favour of the dollar, noting global strength in the US currency, which may weaken the Indian rupee, said dealers.

However, dollar sales by foreign banks on account of foreign fund inflows into Indian companies could provide some support to the rupee, said dealers.

The rupee is seen at 74.0000-74.4000 a dollar during the day.

India Rupee: Down; risk aversion globally on worry over economic recovery