Informist, Wednesday, Oct 13, 2021

By Arushi Jain

MUMBAI – The rupee snapped its three-day losing streak and rose against the dollar today because of a sharp rise in domestic equities and dollar sales by foreign and state-owned banks, dealers said.

The benchmark share indices Nifty 50 and Sensex ended higher by nearly 1% and 0.8%, respectively.

The Indian currency closed at 75.3650 a dollar compared with 75.5100 at 1530 IST on Tuesday.

The local unit had opened higher at 75.3150 a dollar after the US unit fell early in Asian trade ahead of inflation data and minutes of the US Federal Open Market Committee's meeting in September, both due later today.

The key data points will provide investors with further cues on global economic recovery in the world's largest economy and on when the US Federal Reserve will start tapering its massive $120-bln bond-purchase programme.

Investors are concerned about the Fed's decision to taper its pandemic relief asset purchases due to growing fears worldwide that rising energy costs will stoke inflation and curtail economic recovery.

However, despite growing inflation worries, three Fed policymakers on Tuesday said the US economy has healed enough for the central bank to begin to withdraw its crisis-era support.

"I myself believe that the 'substantial further progress' standard has more than been met with regard to our price-stability mandate and has all but been met with regard to our employment mandate," Fed Vice Chair Richard Clarida said at the Institute of International Finance's virtual annual meeting.

At 1605 IST, the dollar index, which measures the US currency against six other major units, was at 94.26 compared with 94.52 on Tuesday. It was at 94.32 on Monday.

However, the rupee weakened early in trade as state-owned banks stepped in to purchase the US unit on behalf of oil marketing companies due to a sharp rise in Brent crude oil price, dealers said.

Prices of Brent crude oil remained elevated near multi-year highs due to tight supply fuelled by global energy crisis. High crude prices increase the country's import bill and subsequently weigh on the rupee.

At 1605 IST, the December contract of Brent crude on the Intercontinental Exchange was at $82.84 per barrel, as against $83.42 a bbl at close Tuesday.

The day's low for the rupee was 75.5100 a dollar.

"Factors like inflationary pressures mainly spurred by high energy prices, supply shortages, and a drop in consumer confidence along with stronger Brent crude prices and higher US yields are keeping traders on edge," said a dealer with a foreign bank.

"For dollar/rupee, yesterday's high of 75.67/$1 acts as a first resistance followed by 75.90/$1 while 75.20/$1 now acts as base (support)," the dealer added.

On the flip side, noting the higher dollar/rupee levels, foreign banks started to sell dollars on behalf of exporters, which limited further fall of the rupee.

Some foreign banks also sold the US unit for overseas investments into Indian companies raising funds through various means, noting a sharp rise in local equity indices, dealers said.

Dealers said that some banks sold dollars also ahead of the weekly currency futures expiry on Thursday.

These dollar sales lifted the Indian currency to the day's high of 75.1900 a dollar.

A US-based bank, a UK-based bank and a Hong Kong-based bank were among the major sellers of dollars, dealers said.

"Exporters will get better levels to hedge as the overall bias still remains negative for the rupee," said a dealer with a brokerage. "Importers should use the opportunity of any dips towards 75.20/$1 or below to book near-term payables."

FORWARDS

The premium on dollar/rupee forwards contract ended higher because state-owned and foreign 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 4.45%, against 4.42% on Tuesday. The premium was at 335.54 paise, compared with 333.37 paise on Tuesday.

OUTLOOK

On Thursday, the rupee will take opening cues from overnight movement in the dollar index after the US inflation and retail sales data are detailed later today.

The Indian unit will also take cues from the minutes of the Fed's September meeting.

Sentiment for the rupee may weaken as oil marketing companies, noting the high Brent crude oil prices, may continue to buy dollars through foreign and state-owned banks, said dealers.

However, dollar sales by banks for exporters at higher dollar/rupee levels and likely on behalf of the central bank may check any sharp fall in the Indian rupee, dealers said.

The rupee is seen at 75.2000-75.7000 a dollar during the day.