Rupee to meander near all-time low, banks on IPO flows and intervention
The Indian rupee is set for a quiet open on Monday, holding near a lifetime low, with IPO inflows and expectations of central bank support likely to provide a cushion through the week against pressure from hedging mismatches.
The 1-month non-deliverable forward indicated the rupee will open in the 88.74–88.78 to the dollar range, compared with the close at 88.7725 on Friday. The currency hit a record low of 88.80 last Tuesday.
The rupee has been on a measured downward path, with the Reserve Bank of India frequently stepping in to keep volatility low. Interbank traders broadly expect that the RBI will tolerate a controlled depreciation.
Ongoing pressure on the rupee has prompted RBI intervention, with importers stepping up hedging amid U.S. trade frictions while exporters hedge at a relatively muted pace.
"The mismatch in hedging flows has become quite pronounced from our side," an FX sales person at a private sector bank said.
"Exporters are holding back, expecting the rupee to weaken further, while importers continue to buy whenever the opportunity arises."
Foreigners selling Indian equities have compounded the rupee's woes. Foreign investors pulled $2.7 billion from the local shares in September, with a chunk of the outflows coming after the U.S. hiked its H-1B visa fee.
On the portfolio flow side, the rupee may see a bit of relief this week. Non-bank lender Tata Capital's $1.75 billion share sale kicks off on October 6 while LG Electronics India will open its $1.3 billion IPO on October 7. Both share sales are expected to draw in funds from foreign investors, traders said.
ASIA STRUGGLES
Asian currencies were mostly weaker on Monday amid a selloff in the Japanese yen. The yen tumbled 1.7% against the U.S. dollar while equities soared to an all-time high after fiscal and monetary dove Sanae Takaichi was elected leader of the ruling party, putting her on course to become the nation's first female prime minister.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.91; onshore one-month forward premium at 14 paise
** Dollar index at 98.02
** Brent crude futures up 1.5% at $65.5 per barrel
** Ten-year U.S. note yield at 4.14%
** As per NSDL data, foreign investors bought a net $20.7mln worth of Indian shares on Oct. 1
** NSDL data shows foreign investors bought a net $10.2mln worth of Indian bonds on Oct. 1
