Informist, Friday, Jun 10, 2022

By Pratiksha and Srijonee Bhattacharjee

NEW DELHI – The Reserve Bank of India resumed its efforts to support the rupee as it fell to another record low against the dollar today.

Continuous purchases of the greenback by oil marketing companies and foreign institutional investors weighed on the rupee through the day leading the unit to a fresh record closing low, dealers said. 

The Indian unit moved in a narrow range of 8 paise today, to end at 77.8325 a dollar against 77.7650 a dollar on Thursday. 

The rupee began the day with a record opening low of 77.7900 a dollar because the dollar index hovered near a three-week high, hit on Thursday, dealers said. 

The dollar index rose as the euro fell sharply after the European Central Bank indicated that it was set to start hiking interest rate. 

Lack of any detail on how to deal with the divergent state of European economies weighed on the euro. The central bank said a divergence between borrowing costs for different European countries hampers the execution of its monetary policy.

At 1640 IST, the dollar index, which measures the strength in the US unit against a basket of six major currencies, was at 103.48 compared with 103.31 on Thursday. It was at 102.55 on Wednesday. 

Shortly after the market opened, the rupee fell to a record low of 77.8300 a dollar, as foreign institutional investors stepped in to purchase dollars noting a slump in domestic equities, dealers said.  

After this, the rupee moved in a tight range of 5 paise against the dollar for almost four hours, as losses from dollar purchases by oil marketing companies and foreign institutional investors were restricted because of persistent sales of the US unit on behalf of the Reserve Bank of India, dealers said.  

However, dollar purchases by importers of oil and foreign institutional investors weighed on the Indian unit through the day, and despite sales of dollars by the RBI and even some exporters, the Indian unit only weakened through the day and finally fell to a fresh all-time low of 77.8750 a dollar.

"The trade was same as yesterday's. The rupee was slowly and steadily depreciating. The trend now is that the RBI is letting the rupee to depreciate 5-10 paisa every day," a dealer with a brokerage firm said. "There was considerable buying (of dollars) for importers and outflows even today."

According to some dealers, the central bank tried to protect the rupee from breaching the support level of 77.85 a dollar for a very long time. 

Some dealers said dollar sales by exporters at these unprecedented low levels of the rupee also provided support to the Indian unit right from the start of trade today.  

Domestic share indices were in the red throughout the day, which dampened sentiment for the Indian unit, dealers said. The Nifty 50 and the Sensex ended 1.7% and 1.8% lower, respectively.

The rupee was at 77.83-77.86 a dollar during the final hour of the trade, before closing at 77.8325 a dollar. 

FORWARDS

Premiums on dollar/rupee forwards fell because state-owned banks sold dollars for delivery a month later on behalf of the Reserve Bank of India, in order to neutralise the impact of dollar sales in the spot market on liquidity, dealers said. 

The premium on one-year, exact-period dollar/rupee contract was at 280.53 paise as against 288.44 paise on Thursday. On an annualised basis, the premium was 3.60% as against the previous close of 3.71%.

"There is receiving in the market because the RBI has been continuously for the past 10 days been selling dollars in the spot market and has now started receiving for June (1-month forwards contract)," a dealer with a state-owned bank said. "Because they are receiving in the short-end, the long-end of the curve is bound to get affected."

Dealers fear that the retail inflation numbers scheduled to release in the US for May after market hours today could be higher than expected which could lead to aggressive rate hikes by the US Federal Reserve. The US central bank has raised its policy rate by 75 basis points this year. It is expected to hike rates by 50 bps each during its meeting next week and in July.    

The view that this may lead to a narrowing of the interest rate differential between the two countries also weighed on premiums. Premiums on swap rates of two currencies track the interest rate differential between the two countries. 

OUTLOOK

On Monday, the rupee will take cues from overnight movement in the dollar index after the release of the US inflation data for May later today, dealers said.

The local unit will also take cues from movement in Brent crude oil prices, dealers said. 

"I think the rupee will now take cues from the US CPI data and after that the FOMC meet will also be a major trigger," a dealer with a state-owned bank said. "We'll find out if the rupee will finally touch the 78 (a dollar) level next week."
 

According to dealers, the RBI will continue to intervene through dollar sales to protect the rupee from depreciating below the 78 a dollar level. 

Dealers now see strong key technical support for the rupee at 77.90 a dollar.

During the day, the rupee is seen in the range of 77.60-77.95 a dollar.

India Rupee: Premiums fall as RBI sells dollars for delivery in June

MUMBAI – Premiums on dollar/rupee forwards fell because state-owned banks sold dollars for delivery a month later on behalf of the Reserve Bank of India, in order to neutralise the impact of dollar sales in the spot market on liquidity, dealers said. 

The premium on one-year, exact-period dollar/rupee contract was at 280.03 paise as against 288.44 paise on Thursday. On an annualised basis, the premium was 3.60% as against the previous close of 3.71%.

"There is receiving in the market because the RBI has been continuously for the past 10 days been selling dollars in the spot market and has now started receiving for June (1-month forwards contract)," a dealer with a state-owned bank said. "Because they are receiving in the short-end, the long-end of the curve is bound to get affected."

Dealers fear that the retail inflation numbers scheduled to release in the US for May after market hours today could be higher than expected which could lead to aggressive rate hikes by the US Federal Reserve. The US central bank has raised its policy rate by 75 basis points this year. It is expected to hike rates by 50 bps each during its meeting next week and in July.    

The view that this may lead to a narrowing of the interest rate differential between the two countries also weighed on premiums. Premiums on swap rates of two currencies track the interest rate differential between the two countries.  (Srijonee Bhattacharjee)

India Rupee - World FX: Dollar index steady ahead of US CPI data

MUMBAI – The dollar index remained steady today ahead of the release of US inflation data due later in the day.

Market participants expect US May consumer-price index inflation at 8.3% on-year rise, which would be the third straight month of a reading above 8%.

Higher-than-expected inflation readings could increase fears of even more aggressive rate hikes by the US Federal Reserve.

At 1500 IST, the dollar index was at 103.30, compared with 103.31 on Thursday. It was at 102.55 on Wednesday.

The euro fell further today after the European Central Bank on Thursday signalled its intent to begin raising interest rates from July.

The lack of any details for a plan to deal with divergent state of economies in the eurozone region weighed down the euro. The central bank said a divergence between borrowing costs for different European countries, hampers the execution of its monetary policy.  (Richard Fargose)

India Rupee - Asia FX: Mixed on caution ahead of US CPI data

NEW DELHI – Asian currencies moved on a mixed note today as investors were cautious ahead of the release of the US inflation data for May, due later today.

A higher-than-expected inflation reading could increase fears that the US Federal Reserve will raise interest rates more aggressively than previously expected.

According to the median estimate of a survey of economists polled by Reuters, the US consumer price index is expected to rise 0.7% in May, compared with 0.3% in April, with annual inflation unchanged at 8.3%.

Investor sentiment was soured after new COVID-19 related curbs were imposed in China's financial hub Shanghai, which raised concerns over demand. 

A fall in local equity indices also weighed on the Asian currencies.

The South Korean won fell 0.9% against the greenback, the biggest decline among its Asian peers, while the Indonesian rupiah was up 0.1% against the dollar. (Pratiksha)

India Rupee: In narrow range; RBI persistently sells dollars

NEW DELHI – The rupee moved in a narrow range against the dollar as losses from dollar purchases by oil marketing companies and foreign institutional investors were restricted because of persistent sales of dollar on behalf of the Reserve Bank of India, dealers said. 

Some state-owned banks sold dollars on behalf of the central bank that wanted to prevent the rupee from depreciating below the support level of 77.85 a dollar, dealers said. 

So far today, the rupee moved in a tight range of 5 paise. The Indian currency fell to a fresh record low of 77.8425 a dollar today. 

Dealers have now pegged immediate key technical support for the rupee at 77.85 a dollar.

For the rest of the day, the Indian unit is seen in the range of 77.6000-77.9500 a dollar.  (Pratiksha)

India Rupee: Hits record low on strong dollar index, weak local shares

NEW DELHI – The rupee hit a fresh all-time low against the dollar today because of a strong dollar index, dealers said. The Indian currency started the day at a record opening low of 77.7900 a dollar and then skidded further to an all-time low of 77.8225. 

"I think with all the factors working against the rupee, we can see the 78- (a-dollar) level anytime soon," a dealer with a state-owned bank said. "The immediate support level is 77.85 (a dollar)."

The rupee was caught in the domino effect of a fall in euro that was bouying the dollar index. On Thursday, the dollar index, which measures the strength in the US unit against a basket of six major currencies, had hit a three-week high of 103.37. Today, it pared some gains and at 0927 IST was at 103.18, still much higher than 102.55 on Wednesday. 

European Central Bank's signal that it was set to start hiking interest rates and a lack of detail on how to deal with divergent state of European economies weighed on the euro.

A slump in Indian share indices also weighed on the rupee, according to dealers. At 0927 IST, both the Nifty 50 and the Sensex were down 1.2% each.

Investor are now focusing on the US inflation data for May, scheduled to be released later today. A higher-than-expected inflation reading could increase fears that the US Federal Reserve will raise interest rates more aggressively than previously expected and this can weigh on rupee.

Dealers have pegged technical support for the rupee at 78.00 a dollar. For the rest of the day, the Indian unit is seen moving in the range of 77.6000-77.9500 a dollar.  (Pratiksha)

India Rupee: Expected range for rupee - Jun 10

NEW DELHI – Following are the expected support and resistance levels for the rupee, as forecasted by leading banks and brokerages in an Informist poll:

(Pratiksha and Richard Fargose)

End

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

Edited by Aditya Sakorkar

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