RBI`s 88.80 line remains in play with dollar scaling two-month high
The Indian rupee is expected to stay pinned near its all-time low on Friday, with the Reserve Bank of India's defence of the 88.80-level likely to come under renewed pressure following the dollar index's climb to a two-month high.
The 1-month non-deliverable forward indicated the rupee will open in the 88.78-88.80 range versus the U.S. dollar, after the currency settled at 88.7825 on Thursday.
The dollar index's climb to a two-month peak has brought the rupee's lifetime low mark of 88.80 back into focus, a level that the Reserve Bank of India has been defending all through this week.
While the RBI has put a floor under the rupee, bankers say sustained dollar strength and hedging interest could test the central bank's resolve.
"Importers are still chasing dollars aggressively," said a FX salesperson at a private sector bank.
"The smallest dips (in USD/INR) are drawing (dollar) demand, and that's keeping the RBI on its toes. Whether the next push higher comes today or tomorrow is impossible to call," he said.
The flow picture for the rupee remains unsupportive. Bankers note importer demand for dollars has stayed heavy, driven by oil and jewellery sector, while exporter flows have been patchy at best. Portfolio flows, too, have offered little relief.
DOLLAR RALLY STRETCHES
The dollar index rose 0.6% on Thursday to a two-month high, fuelled by political volatility in Europe and Japan, which has weighed on the euro and the Japanese yen. Thursday's advance extended its weekly rally to 1.7%, putting the index on course for its best week in a year.
Weak risk sentiment and the uptick in U.S. yields provided a further boost to the dollar in Thursday's session.
Asian currencies were mixed on the day in face of the dollar's rally.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.94; onshore one-month forward premium at 14.25 paise
** Dollar index at 99.32
** Brent crude futures up 0.1% at $65.3 per barrel
** Ten-year U.S. note yield at 4.14%
** As per NSDL data, foreign investors bought a net $83.1 million worth of Indian shares on Oct. 8
** NSDL data shows foreign investors bought a net $117.5 million worth of Indian bonds on Oct. 8
