Soaring dollar puts all-time low in peril; traders eye RBI defence
The Indian rupee may inch towards a record low at the open on Wednesday, bogged down by the dollar index's rally to a six-week high and weakness in Asia, prompting bets on another round of central bank intervention.
The 1-month non-deliverable forward indicated the rupee will open in the 88.78-88.82 range versus the U.S. dollar, compared with Tuesday's close of 88.7725.
The rupee hit an all-time low of 88.80 last Tuesday. In the four sessions since then, the local unit has managed to avoid slipping to a new low, helped by active intervention by the Reserve Bank of India.
Bankers said the RBI has been selling dollars in the spot market while simultaneously conducting buy/sell swaps to offset the liquidity impact of its interventions. Thanks to the RBI, intraday volatility has shrunk, with the rupee confined to a range of less than 10 paisa so far this week.
The RBI is defending 88.80 "with size", a currency trader at a Mumbai-based bank said. "However, the bids (on dollar/rupee) keep rolling. Today will be a stern test of how resolute it is in defending that level."
He reckons the opening ticks will be critical — how the dollar/rupee pair behaves in the first half hour could decide the day’s bias.
YEN-LED DOLLAR RALLY
The dollar index rose 0.5% on Tuesday and gained another 0.3% in Wednesday’s Asian session, inching towards the 99 mark, its highest level in six weeks.
The slump in the Japanese yen helped lift the index, with the yen trading at its weakest since February amid investors assessing the likely policy stance of Japan’s next prime minister, Sanae Takaichi.
Following Takaichi's win, Japan's rates markets have priced out a central bank rate hikes for this calendar year, and now see the next hike possibly coming only in March 2026, MUFG Bank said in note, putting the yen under pressure.
The drop in the yen spilled over to other Asian currencies.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 88.94; onshore one-month forward premium at 14 paise
** Dollar index up at 98.82
** Brent crude futures up 0.8% at $66 per barrel
** Ten-year U.S. note yield at 4.13%
** As per NSDL data, foreign investors sold a net $165.8mln worth of Indian shares on Oct. 8
** NSDL data shows foreign investors bought a net $36.7mln worth of Indian bonds on Oct. 8
