The offshore rupee non-deliverable forwards (NDF) market has gained momentum, led by global turmoil, with the one-month and the three-month NDF hitting September 2013 lows.
Bloomberg data showed the one-month NDF hit 68.42 to the dollar on Wednesday—the lowest level since September 3, 2013.
The three-month NDF even breached 69 to the dollar to hit 69.10 on Wednesday— again the lowest level since September 3, 2013.
Movement in the offshore NDF market is indicative of foreign investors’ perception where the currency is expected to head forward.
Speculators also play in this market to take advantage of any arbitrage opportunities between the onshore and the offshore market.
The rupee one-month onshore forward on Wednesday stood at 68.35 to the dollar, while the three-month onshore forward stood at 69.08 to the dollar. The spreads between the onshore and offshore forwards remained in the range of six to 10 paise at close, according to market participants.
“Dollar/rupee has flipped from discount to premium in the offshore (market) indicating portfolio liquidation pressure from foreign investors and speculative bets as well. As long as the premium of 6-10 paise for one-month tenor persists in the offshore market, central bank intervention back home to strengthen the Rupee may prove less effective,” said Anindya Banerjee, AVP at Kotak Securities.
The local currency breached 68 to the dollar on Wednesday for the first time since September 2013 owing to sell-off in equities by foreign investors. .
“The rupee is still in a better position compared to other emerging market currencies,” said MV Srinivasan, vice-president-south operations at Mecklai Financial Services.
This is evident from the fact that the Rupee is holding on much better compared to some of its Asian peers.