Informist, Wednesday, Oct 6, 2021

By Arushi Jain

MUMBAI – The rupee fell to its lowest level in over five months against the dollar today because prices of Brent crude oil surged beyond $83 per barrel, a three-year high, dampening investor sentiment for the Indian unit, dealers said.

Moreover, banks stepped in to purchase the US unit after stop-losses were triggered near 74.80-73.90 a dollar towards the end of trade, dealers added.

The rupee settled at 74.9750 a dollar today compared with 74.4450 a dollar at 1530 IST on Tuesday. It fell nearly 0.7% from the previous close.

The Indian unit closed at the lowest level since Apr 23.

A large oil corporate and two big state-owned banks persistently bought dollars on behalf of oil marketing companies after Brent crude prices soared because the Organization of the Petroleum Exporting Countries and its allies stuck to an existing plan of gradually increasing output every month.

OPEC and its allies reconfirmed their plan to hike output by 400,000 barrels per day every month till the end of the year, ignoring calls by major consumers such as the US and India to step up production to ease oil prices. 

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

At 1640 IST, the December contract of Brent crude on the Intercontinental Exchange was at $82.22 per bbl, compared with $82.56 a bbl at close on Tuesday. It was at $81.28 per bbl on Monday.

Prices for December contract of Brent crude futures rose to as much as $83.47 per bbl today.

A fall in domestic benchmark equity indices also dampened sentiment for the Indian unit, said dealers. The Nifty 50 and the Sensex ended down nearly 1% each. 

Further, dollar remained up against major currencies as investors worldwide shifted their focus to the US non-farm payrolls report for September, scheduled to be released on Friday, for further cues on when the US Federal Reserve may start tapering its asset purchases.

The non-farm payrolls data is expected to show continued improvement in the labour market, with a forecast for 488,000 jobs to have been added in September. Better-than-expected jobs data could pave the way for tapering of the Fed's asset purchases, and may lend further support to the dollar index.

"This week's ADP (private payrolls) and NFP (non-farm payrolls) data are very important," said a dealer with a big state-owned bank. "Sooner or later dollar strength has to pick up, it's the timing of it that matters."

The US unit also moved higher today amid concerns that surging oil prices could spur inflation and interest rate hikes by the Fed.

At 1640 IST, the dollar index, which measures the US currency against six other major units, was at 94.38 compared with 93.98 on Tuesday. It was at 93.78 on Monday.

Noting this, banks were said to have covered their existing bets placed in favour of the rupee, which dragged the local unit to the day's low of 74.9875 a dollar.

"A combination of rising oil prices, fear of liquidity ebbing due to central bank rolling back easing measures, rising bond yields, and weakness in stocks, all have had a negative impact on rupee," said Anindya Banerjee, deputy vice president, currency derivatives and interest rate derivatives at Kotak Securities Ltd in a note. "Carry traders were forced to cover shorts (bets) once dollar/rupee broke above 74.65/$1 levels."

Meanwhile, the rupee found some support in the initial part of the trade session as some foreign banks sold dollars for exporters at relatively higher dollar/rupee levels, according to dealers.

Traders remained cautious through the day ahead of the outcome of the Reserve Bank of India's October policy review meeting, also scheduled for Friday, dealers said. The RBI monetary policy committee meeting started today.

Investors also await minutes of the European Central Bank's September policy meeting due Thursday.

FORWARDS

The premium on dollar/rupee forwards contract ended lower because banks sold dollars for forward delivery on behalf of exporters, who were said to have sold dollars in the spot market as well, dealers said.

On an annualised basis, the premium on the one-year, exact-period dollar/rupee contract was at 4.44%, against 4.46% on Tuesday. The premium was at 335.61 paise, compared with 331.94 paise on Tuesday.

OUTLOOK

On Thursday, the rupee will take opening cues from overnight movement in crude oil and dollar index.

Banks are expected to buy dollars on behalf of oil marketing companies due to high Brent crude prices and this may weigh on thr Indian currency, dealers said.

Dealers have pegged strong technical support for the rupee at 75.00 a dollar.

Dealers expect the currency pair to trade within a range of 74.70-75.40 a dollar in the near term.

The rupee is seen at 74.7000-75.2500 a dollar during the day.

India Rupee: Down as Brent prices, dollar rise; US jobs data in focus

MUMBAI – The rupee weakened against the dollar today because Brent crude oil prices moved near three-year highs, which prompted some banks to buy dollars on behalf of oil marketing companies, said dealers.

High crude oil prices worsen India's current account deficit by increasing the import bill and subsequently dampen investor sentiment for the rupee.

Brent crude prices surged after the Organization of the Petroleum Exporting Countries and its allies reconfirmed their plan to hike output by 400,000 barrels per day every month till the end of the year, ignoring calls by major consumers such as the US and India to step up production to ease oil prices. 

At 1035 IST, the December contract of Brent crude on the Intercontinental Exchange was at $82.68 per bbl, compared with $82.56 a bbl at close on Tuesday. It was at $81.28 per bbl on Monday.

The dollar also rose against major currencies as investors turned their focus to non-farm payrolls report in the US for September, due on Friday, for cues on when the US Federal Reserve may start tapering its asset purchases.

The non-farm payrolls data is expected to show 488,000 jobs were added in September. Better-than-expected jobs data could pave the way for tapering of the Fed's asset purchases, which will weigh on the Indian unit, said dealers.

At 1035 IST, the dollar index, which measures the US currency against six other major units, was at 94.12 compared with 93.98 on Tuesday. It was at 93.78 on Monday.

"With the combined effect of burning oil prices and rising US bond yields...rupee could be breaching the technically important level of 74.74 a dollar soon," said a dealer with a private bank.

With key technical support pegged at 74.7000 a dollar, the Indian unit is expected to move in a range of 74.5000-74.7000 a dollar during the day. (Arushi Jain)