RUPEE HITS FIVE-MONTH HIGH
The Indian rupee surged on Thursday to achieve its highest closing level in over five months, propelled by gains in its Asian counterparts and bolstered by dollar inflows into domestic share and bond markets.
Numeric Detail: The rupee (USDINR) settled at 82.84 against the U.S. dollar, marking its highest closing level since Sept. 4, following its most significant single-session gain in nearly two months.
Intraday Trading Range: Throughout the day, the rupee traded within a range of 82.84 and 82.95, after closing at 82.97 in the previous session. It reached a three-week high during the trading session.
Impact of LSEG Outages: Despite brief outages on various London Stock Exchange Group (LSEG) news and currency trading platforms globally, traders noted that these interruptions had minimal impact on the rupee.
FOREIGN INFLOWS AND RBI’S ROLE: Analysts at ForExim highlighted the potential for further appreciation in the rupee above 82.80, driven by robust foreign inflows. However, the Reserve Bank of India’s firm control over the currency could mitigate additional upside potential.
Market Confidence and Carry Set-Up: The stability of the rupee contributes to investor confidence, particularly regarding favorable carry setups.
GLOBAL MARKET TRENDS: While Asian currencies generally strengthened, the dollar index continued its decline from Wednesday, reaching a three-week low.
Fed Rate Cut Expectations: The dollar faced challenges despite reduced expectations of a Federal Reserve rate cut in March or May, following indications in the minutes of the central bank’s previous policy meeting that emphasized the need to ascertain declining inflationary risks before implementing rate cuts.
Forward Premiums Decline: Forward premiums for dollar/rupee declined, with the one-year implied yield dropping to its lowest level in two months.
RBI’s Swap Maturity and Market Dynamics: Traders noted that the Reserve Bank of India’s upcoming $5 billion swap maturity likely influenced a receiving interest, contributing to lower forward premiums. The central bank’s sell dollars/buy rupees swap matures on March 11.
Key Takeaways:
- The rupee achieves a five-month high, supported by dollar inflows and gains in Asian currencies.
- Despite global market disruptions, the rupee remains resilient, signaling market confidence.
- Reduced expectations of a Fed rate cut in March or May impact the dollar’s performance.
- The RBI’s control over the rupee and the upcoming swap maturity affect market dynamics and forward premiums.