With the rupee closing below 68 to the dollar, the offshore non-deliverable forwards (NDF) have also hit new trading lows, according to data available with Bloomberg.
The one-month NDF hit a low of 68.69 in Wednesday’s trade which is the lowest since early September 2013 levels. The onshore rupee one-month forward hit 68.64 in Wednesday’s trade which is again close to early September 2013 levels.
The three-month NDF also witnessed a similar trend even as it hit 69.32 during the day while the onshore three-month forward hit 69.36. One forex dealer said if Rupee falls to 68.40 to the dollar, there is a possiblity of the three-month NDF hitting the 70 mark.
On Wednesday, the Indian currency fell 0.13% to close at 68.07 to the dollar taking cues from losses in global currencies and equities.
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.
However, market experts say the current fall in NDF does not imply any negative perception on the fundamentals of Rupee but is led by the general weakness in global equities and currencies.
MV Srinivasan, vice-president-south operations at Mecklai Financial Services points out NDF is generally an arbitrage play. “Since the Rupee has opened weaker today, the NDF has also declined In line with the on shore rates. However, there is not much of an arbitrage play between the NDF and onshore rates,” he added.
Forex experts also point out that the central bank has been intervening in the exchange traded and currency derivatives segment over the last two weeks or so and this has reduced the arbitrage opportunities in the NDF segment.
Some experts indicated that fears of a Chinese contagion might have been reflected in the NDF rates. “Offshore market is exhibiting the fears of Chinese contagion. They are quoting premium over onshore rates,” said Anindya Banerjee, currency and interest rates research desk at Kotak Securities.