Informist, Tuesday, Sep 28, 2021

By Arushi Jain

MUMBAI – A jump in the yield on the 10-year benchmark US Treasury note to a near three-month high saw the rupee fall to its lowest level in over a month against the dollar today, said dealers.

At 1638 IST, the yield on the benchmark 10-year US bond was at 1.53% compared with 1.48% on Monday and 1.47% on Friday.

US Treasury yields have surged since the end of last week after the US Federal Reserve said it may start reducing its massive monthly bond purchases likely by November and hinted that interest rate hikes may follow soon.

The rupee settled at 74.0400 a dollar compared with 73.8400 a dollar at 1530 IST on Monday. The Indian unit ended at its lowest level since Aug 26.

Moreover, a surge in the price of Brent crude oil beyond the $80-per-barrel mark prompted state-owned banks, foreign banks and corporates to purchase dollars on behalf of oil marketing companies in considerable amounts, said dealers.

At 1638 IST, the November contract of Brent crude on the Intercontinental Exchange was at $80.01 per bbl, compared with $79.53 a bbl at close on Monday and $77.23 a bbl on Friday.

The contract today surged to as much as $80.75 per bbl, close to a three-year high.

High crude oil prices worsen India's current account deficit by increasing the import bill and, hence, weigh on the rupee.

"Fed turning hawkish and rising oil prices, both are pushing yields higher. Higher yields and higher oil prices are double negative for the rupee, as it can trigger outflows," said Anindya Banerjee, deputy vice president, currency derivatives and interest rate derivatives at Kotak Securities Ltd.

Dealers said some banks also purchased dollars as stop-losses got triggered near 73.90 a dollar.

These massive dollar purchases pushed the rupee below the psychologically-crucial 74-per-dollar mark to the day's low of 74.1175 a dollar.

A large Indian corporate, a US-based bank and a large state-owned bank were among the major buyers of the dollar, dealers said.

A sharp fall in domestic benchmark equity indices also dampened sentiment for the Indian currency, dealers said. The Nifty 50 and the Sensex ended down more than 0.6% each.

The dollar also strengthened against other major currencies in European trade, tracking a surge in US Treasury yields, said dealers.

The dollar rose to its highest in more than five weeks and at 1638 IST, the dollar index was at 93.65 compared with 93.38 on Monday. It was at 93.28 on Friday.

In the initial part of the trade, the rupee rose to the day's high of 73.7300 a dollar as some foreign banks stepped in to sell dollars for overseas investments into Indian companies raising funds through various means, dealers said.

Aditya Birla Sun Life Asset Management Co will launch its initial public offer on Wednesday to raise nearly $410 mln. Bank of India is likely to raise 18 bln rupees through tier-II bonds this week. Housing Development Finance Corp also plans to raise up to 60 bln rupees through secured redeemable, non-convertible debentures and has invited bids for the same on Wednesday.

A large state-owned bank was also among the sellers of the dollar, according to dealers.

"Volumes were not much in spot towards the end," said a dealer with a brokerage firm. "US yields had surged to 1.53% in the last one hour of trade, leading to buying of dollars by European funds...its impact on rupee is likely to be temporary."

Investors are now waiting for Fed Chairman Jerome Powell's speech before the Congress later today and speeches of other Fed officials later this week for hints on the timeline of tapering asset purchases.

Dealers have now pegged key technical resistance for the rupee at 73.70 a dollar and support at 74.30 a dollar.

FORWARDS

The premium on dollar/rupee forwards contracts ended higher because banks purchased dollars for forward delivery on behalf of importers, dealers said.

On an annualised basis, premium on the one-year, exact-period dollar/rupee contract was at 4.41%, against 4.39% on Monday. The premium was at 326.50 paise, compared with 324.16 paise on Monday.

OUTLOOK

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

The Indian currency may weaken as banks are expected to continue buying dollars for oil marketing companies noting the elevated Brent crude oil price, dealers said.

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

The rupee is seen at 73.7000-74.2500 a dollar during the day.

India Rupee: Slumps on high Brent oil prices, fall in local equities