Informist, Tuesday, Jan. 28, 2025

By Gowri Lakshmi

MUMBAI – The rupee ended sharply lower against the dollar Tuesday on rising bets of an interest rate cut by the Reserve Bank of India next week, dealers said. They said the rise of the dollar index following US President Donald Trump's remarks about higher tariffs also weighed on the local unit.

"The rupee experienced pressure only in the morning largely due to increased bets on RBI cuts. After that, resistance was seen probably by some foreign banks (dollar) sales and maybe by RBI itself," a dealer at a private bank said.

After moving in a tight range of just over 6 paise during the day, the rupee ended at 86.5225 a dollar against its previous close of 86.3425 on Monday. A fall in other Asian currencies also weighed on the rupee. Other Asian currencies fell between 0.2% and 0.8% against the US dollar, with the South Korean Won being the worst performer. The Indian unit fell 0.2% against the dollar Tuesday.

The rupee opened significantly lower against the dollar at 86.5000, as expectations of an interest rate cut by the RBI increased after it announced measures to inject durable liquidity into the banking system on Monday. Dealers said the rate-setting panel is expected to deliver a 25-basis-point rate cut on Feb. 7, the first since May 2020.

To ease liquidity conditions, the RBI announced multiple measures including buying of government bonds worth INR 600 billion through open market operation auctions in three tranches, holding a 56-day variable rate repo auction for INR 500 billion on Feb. 7, and conducting a dollar/rupee buy/sell swap auction of $5 billion for a tenor of six months on Friday.

The rupee also came under pressure as the dollar index recovered from a near six-week low on Tuesday after reports suggested that US President Donald Trump wanted a "much bigger" tariff rate than the 2.5% proposed by Treasury Secretary Scott Bessent. At 1530 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 107.88, compared to 107.43 on Monday and 107.47 on Friday.

A fall in the offshore Chinese yuan further weighed on the Indian rupee. However, the fall in the local currency was limited as some foreign banks sold the greenback on behalf of foreign portfolio investors who invested in domestic equities. The benchmark share indices, Nifty 50 and BSE Sensex, ended higher by 0.6% and 0.7% respectively. Some dealers also said foreign fund inflows into the government debt market may have also supported the rupee.

FORWARDS

Premiums on dollar/rupee forward contracts were down across tenures after the RBI Monday announced it will hold a buy/sell swap auction of $5 billion for a tenor of six months on Friday, in a bid to infuse durable liquidity into the banking system, dealers said. This will be the first dollar/rupee buy/sell auction since April 2019.

The central bank's announcement of the buy/sell swap auction comes after having conducted buy/sell swaps since December in the forwards market intermittently to offset the impact of its dollar sales in the spot market and avert pushing out rupee liquidity.

Further, the RBI's announcement of durable liquidity measures boosted expectations of a rate cut by the Monetary Policy Committee next week, dealers said. This may lead to narrowing of the differential between Indian and US yields and exert pressure on the premiums, they said. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries.

At 1530 IST, the premium on the one-year exact-period dollar/rupee forward contract was 188.45 paise, against 196.97 paise on Monday. On an annualised basis, the premium was 2.18%, against Monday's close of 2.28%. 

OUTLOOK 

On Wednesday, the rupee will take cues from the movement of the dollar index and offshore Chinese yuan, dealers said. Traders are also waiting for the US Federal Open Market Committee's policy decision early Thursday, where it is widely expected to hold rates steady, dealers said.

"The FOMC is quite this time, highly likely that they will keep rates steady. But this is the first FOMC after Trump has assumed (power as US president), so any commentary from the policymakers will be closely assessed, and the dollar will move accordingly," a dealer at a state-owned bank said.

Dealers expect banks to purchase the greenback on behalf of importers, who are wary of a further fall in the rupee. However, they also expect the RBI to step in with dollar sales if the rupee comes under immense pressure and to curb excessive market volatility.

"We can expect market volatility in the coming weeks, at least till RBI's policy decision," a dealer at a public sector bank said. "They will likely cut rates, but the market is expected to be volatile throughout the week until then."

During the day, the rupee is seen in a range of 86.30-86.60 a dollar, with strong technical support pegged at 86.60 a dollar.

India Rupee - World FX: Euro down 0.6% after ECB survey; dollar index rises

MUMBAI – The euro was down 0.6% against the dollar after a European Central Bank survey showed on Tuesday that Eurozone banks tightened corporates' access to credit last quarter and expect further tightening in the first three months of 2025, reinforcing the case for more interest rate cuts as the economy slows. The European central bank is scheduled to announce its policy decision on Thursday, where the central bank is expected to lower its interest rates by 25 basis points. 

The dollar index recovered from the near six-week low it hit on Monday after reports said that Trump wanted a "much bigger" tariff than the proposed 2.5% by Treasury Secretary Scott Bessent. The Federal Open Market Committee meeting is scheduled to begin later in the day, where the panel is widely expected to keep the rates steady. The US central bank will announce its policy decision early Thursday.

At 1428 IST, the dollar index, which measures the strength in the dollar against a basket of six major currencies, was at 107.95, compared with its previous close of 107.43 on Monday and 107.47 on Friday. The Swiss franc was down 0.5%.

The Japanese yen was down 0.7% against the greenback, tracking a rise in the dollar index. However, losses in the currency were limited after data on Tuesday showed that Japan's service sector inflation rose to 2.9% in December, increasing expectations of further interest rate hikes by the Bank of Japan at its upcoming policy meetings.

Further, former Bank of Japan official Makoto Sakurai stated on Tuesday that the central bank may raise rates again by June or July, with the aim of bringing the short-term rate to 1.5% in the next two years. "The BOJ will seize any opportunity to raise interest rates without much delay. That's the impression I got looking at how the BOJ hiked in January, instead of waiting until March," Sakurai said. Japan's central bank raised its borrowing costs last week to the highest levels since the financial crisis of 2008.

The pound sterling was down 0.5% against the greenback Tuesday, due to growing expectations that the Bank of England will likely lower its benchmark rates at its policy announcement due Feb. 6. The UK's central bank is widely expected to lower its borrowing rates by a quarter percentage point. 

The Australian dollar was down 0.7% against the US unit ahead of inflation data due later in the day. The consumer price index is expected to rise 2.5% year-on-year. Reports said that a cooler-than-expected inflation print may reinforce the view that the Reserve Bank of Australia may lower its interest rate at its monetary policy announcement scheduled on Feb. 18. 

The New Zealand dollar was down 0.6% against the greenback, tracking a fall in the Australian currency. Australia and New Zealand share close bilateral trade relations. (Gowri Lakshmi)

India Rupee: Remains sharply down on Feb rate cut bets, rise in dollar index

MUMBAI – The rupee remained sharply down against the dollar Tuesday on increasing bets of an interest rate cut by the Reserve Bank of India's Monetary Policy Committee next week, after the central bank on Monday announced measures to inject durable liquidity into the banking system, dealers said. They expect the rate-setting panel to lower interest rates by 25 basis points on Feb. 7. 

On Monday, the RBI announced multiple measures to ease liquidity conditions. The steps included buying government bonds worth INR 600 billion through open market operation auctions in three tranches, holding a 56-day variable rate repo auction for INR 500 billion on Feb. 7, and conducting a dollar/rupee buy/sell swap auction of $5 billion for a tenor of six months on Friday. 

"There is not much of a momentum in the market now after the initial buying pressure in the morning. Some foreign banks have sold (dollars), which limited the fall. We can see very strong resistance at 55 (86.55) even though the rupee touched beyond that level momentarily," a dealer at a public sector bank said. The rupee has moved in a tight range of 9 paise so far during the day.

However, losses in the Indian currency were limited as some foreign banks sold the greenback, likely on behalf of foreign portfolio investors, looking to invest in the domestic stock markets, dealers said. At 1335 IST, both the benchmark indices, the Nifty 50 and the BSE Sensex, were up 1% each. Some dealers said that some foreign fund inflows might also have gone into the government debt market. 

A rise in the dollar index continued to weigh on the local unit, according to dealers. The dollar index rose on Tuesday after reports that US President Donald Trump wanted a "much bigger" tariff than the 2.5% proposed by Treasury Secretary Scott Bessent.

At 1335 IST, the dollar index, which measures the strength of the dollar against a basket of six major currencies, was at 107.92, compared to its previous close of 107.43 on Monday and 107.47 on Friday. Traders also await the outcome of the US Federal Open Market Committee's meeting on Tue-Wed, at which the panel is widely expected to keep rates unchanged.

For the rest of the day, the rupee is seen moving in a range of 86.40-86.60 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 28

MUMBAI – At 1134 IST, the rupee was at 86.5250 per dollar. At 0900 IST, the rupee was at 86.5000 a dollar against its previous close of 86.3425. Following are the key support and resistance levels for the rupee as provided by leading banks and brokerages:

(Gowri Lakshmi, Sourabh Kumar, Pratiksha)

India Rupee: Forward premiums fall as RBI announces buy/sell swap auction

NEW DELHI - Premium on dollar/rupee forward contracts fell across tenures after the Reserve Bank of India on Monday announced it will hold a buy/sell swap auction of $5 billion for a tenor of six months on Friday, in a bid to infuse durable liquidity in the banking system, dealers said. This will be the first dollar/rupee buy/sell auction since April 2019.

"Premiums had to go lower after the swap announcement, but I was not expecting a sharp fall, since they (RBI) have been doing buy/sell on and off," said a dealer at a private bank. "I think premiums will remain on the lower side till the auction date."

The central bank's announcement of the buy/sell swap auction comes after it has been conducting buy/sell swaps since December in the forwards market intermittently to offset the impact of its dollar sales in the spot market and avert pushing out rupee liquidity. The RBI also announced two other measures--buying government bonds worth INR 600 billion via open market operation auctions in three tranches and holding a 56-day variable rate repo auction for INR 500 billion on Feb. 7. 

At 1120 IST, the premium on the six-month exact-period dollar/rupee forward contract was 97.03 paise, against 104.28 paise on Monday. On an annualised basis, the premium was 2.26%, against its previous close of 2.43%. 

Further, the central bank's announcement of durable liquidity measures boosted expectations of a rate cut by the RBI's Monetary Policy Committee next week, dealers said. This may lead to narrowing of the differential between Indian and US yields and exert pressure on the premiums, they said. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries.

Market participants see the one-year dollar/rupee forward premium in the range of 2.00-2.30% in the near term. At 1120 IST, the premium on the one-year exact-period dollar/rupee forward contract was 189.46 paise, against 196.97 paise on Monday. On an annualised basis, the premium was 2.19%, against Monday's close of 2.28%. (Pratiksha)

India Rupee - Asia FX: Most fall; Philippine peso down on rate cut view

MUMBAI – Most Asian currencies were down against the dollar as the dollar index recovered on Tuesday after reports that US President Donald Trump wanted tariffs "much bigger" than the 2.5% proposed by Treasury Secretary Scott Bessent. At 1015 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was 107.97, against 107.43 on Monday and 107.47 on Friday. The index had fallen to a near six-week low on Monday.

The Philippine peso was down 0.1% against the greenback as traders assessed the possibility of an interest rate cut by the Philippines central bank amid sluggish economic growth, reports said. The central bank is expected to announce its next policy decision on Feb. 13. The Malaysian ringgit was down 0.1%.

The Thai baht was down 0.2% against the US unit amid the ongoing tussle between the Thai government and its central bank. Thailand's Finance Minister Pichai Chunhavajira pushed the Bank of Thailand to cut borrowing costs and make the baht "more competitive" in order to boost the country's export and tourism sector. On Monday, Pichai also called for faster inflation and a weaker currency. 

Financial markets in Taiwan, South Korea, Indonesia and China are shut on account of the Lunar New Year. (Gowri Lakshmi)

India Rupee: Sharply down on Feb rate cut bets post RBI's liquidity measures

MUMBAI – The rupee was sharply down against the dollar Tuesday as bets of an interest rate cut at the Reserve Bank of India's Monetary Policy Committee meeting in February increased after the central bank announced measures to boost durable liquidity on Monday, dealers said. The rate-setting panel is expected to deliver a 25-basis-point rate cut on Feb. 7, the first since May 2020.

On Monday evening, the RBI announced multiple measures to ease liquidity conditions. The steps included buying government bonds worth INR 600 billion through open market operation auctions in three tranches, holding a 56-day variable rate repo auction for INR 500 billion on Feb. 7, and conducting a dollar/rupee buy/sell swap auction of $5 billion for a tenor of six months on Friday.  

"The rate cut factor is a huge possibility now which is weighing on the (Indian) currency, alongside a rise in the dollar index," a dealer at a state-owned bank said. "The market will be volatile, it has moved 6 paise within a few minutes, but it (rupee) falling past 60 (86.60 a dollar) will be tough during the day," the dealer added. 

The rupee was also weighed down by banks' dollar purchases on behalf of foreign portfolio investors, looking to withdraw funds from the domestic equities market. So far in January, FPIs have net sold $7.1 billion worth of shares. 

The rupee also came under pressure as the dollar index rose on Tuesday after reports that US President Donald Trump wanted tariffs "much bigger" than the 2.5% proposed by Treasury Secretary Scott Bessent. At 0955 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was 107.94, against 107.43 on Monday and 107.47 on Friday.

The Chinese yuan fell 0.1% against the greenback, which also weighed on the Indian currency, according to dealers. For the rest of the day, the rupee is seen moving in a range of 86.40-86.70 against the dollar. They see technical support for the Indian unit at 86.60 a dollar.  (Gowri Lakshmi)

India Rupee: Expected range for rupee - Jan 28

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 Ashish Shirke

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