Rupee's recovery aided by dollar's stumble; spotlight on forwards after RBI's FX swap
The Indian rupee is set to draw support from the dollar's slide to a more than two-month low at Wednesday's open, while attention will turn to forward premiums after the Reserve Bank of India unveiled a $10 billion dollar–rupee swap.
The 1-month non-deliverable forward indicated the rupee will open in the 89.50-89.60 range versus the U.S. dollar, having settled at 89.65 on Tuesday.
The rupee has moved in a holding pattern over the past two sessions after a notable recovery triggered by central bank intervention. The currency now has some distance from its all-time low of 91.0750 per dollar, while the dollar's ongoing struggles and positive risk sentiment are expected to provide additional support.
The dollar being on the back foot provides the rupee with additional breathing space, a currency trader at a bank said.
It needs that help to hold on to current levels, which the market knows "won't be straightforward", he added.
The dollar index fell to 97.75 in Asian trade, its lowest level in more than two months. The decline came despite data showing the U.S. economy expanded faster than expected in the third quarter.
Analysts attributed the dollar's weakness to turn-of-the-year position adjustments and data that showed US consumer confidence fell to its lowest level since April.
FORWARD PREMIUMS
Beyond spot dollar/rupee, attention will turn to forward premiums after the RBI late on Tuesday unveiled a buy/sell dollar–rupee swap. The move is part of the central bank’s broader plan to infuse rupee liquidity into the banking system over the next month, alongside open market bond purchases.
The buy/sell swap comes against the backdrop of soaring forward premiums, which bankers said had become increasingly distorted, prompting calls for the RBI to step in.
Forward premiums are expected to cool off following the swap, with the impact felt most in far tenors, bankers said.
KEY INDICATORS:** One-month non-deliverable rupee forward at 90.02; onshore one-month forward premium at 48 paise** Dollar index down at 97.78
** Brent crude futures up 0.1% at $62.4 per barrel** Ten-year U.S. note yield at 4.16%
** As per NSDL data, foreign investors bought a net $21mln worth of Indian shares on Dec. 22
** NSDL data shows foreign investors bought a net $20mln worth of Indian bonds on Dec. 22
