Rupee poised to slip on oil pangs, heavy portfolio outflows add to strain
The Indian rupee is expected to open slightly weaker on Monday, as a lack of progress in U.S.-Iran peace talks lifted oil prices, while traders also anticipate elevated foreign portfolio outflows to weigh on the currency.
The Indian rupee is expected to open around 95.10-95.15 per dollar, according to traders, down from its close at 95 on Friday.
Brent oil prices rose more than 2.5% to $93.4 per barrel as Israel stepped up incursions into Lebanon, dimming expectations that the U.S. and Iran could soon announce an extension to their ceasefire agreement. [O/R]
The rise in oil prices drove down most Asian currencies, with the Korean won leading losses, sliding 0.9%. The rupee is also expected to be under pressure, with the strain likely to be amplified by heavy foreign portfolio outflows.
"A range of different flows, including those linked to equity index adjustments, maturities in the non-deliverable forward market and routine corporate demand, are likely to drive the rupee," a trader at a Mumbai-based private bank said.
Foreign portfolio investors net sold Indian equities worth more than $2 billion on Friday, provisional exchange data showed.
"But, as seen on Friday, those flows would matter little if the RBI decides to keep the currency anchored around a certain level," the trader added.
Market interventions by the Reserve Bank of India have helped shore up the rupee from its record low of 96.96 hit in May. Reflecting some of those efforts, India's foreign exchange reserves dipped to an over one-year low of $681 billion in the week ended May 22.
Data released post-market hours on Friday showed that the central bank's short forward dollar commitments declined to $95.3 billion at the end of April from over $100 billion in March.
"The RBI has a massive short (USD) position in forwards, which it would want to square off. It may therefore keep a firm floor in USD/INR. We expect a 94.40-96.20 range over the next 4-6 weeks," FX advisory firm IFA Global said in a note.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 95.42; onshore one-month forward premium at 29.75 paisa
** Dollar index at 99.05
** Brent crude futures up 2.4% at $93.3 per barrel
** Ten-year U.S. note yield at 4.47%
** As per NSDL data, foreign investors bought a net $157.1mln worth of Indian shares on May 27
** NSDL data shows foreign investors sold a net $9.6mln worth of Indian bonds on May 27
