Rupee forwards cool in offshore markets

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Published: July 12, 2019 3:03:10 AM

The dollar index, which gauges the greenback's strength against a basket of six currencies, dropped 0.23% to 96.87.

Rupee strengthened along with the emerging market peersRupee strengthened along with the emerging market peers

The three-month rupee non-deliverable forwards (NDF) in the offshore market cooled by 1 paisa to Rs 69.12 on Thursday — the lowest in the past 11-months — as the investor sentiment improved amid expectations of further rate cuts, with US Federal Reserve chairman Jerome Powell on Wednesday adding prospects to a possible rate cut later this month.

Treasurers believe the rupee may maintain its current levels and not depreciate much as foreign portfolio investors (FPIs) continue to invest in the Indian capital markets and as interest rate spreads continue to go down. “Indian and US interest rates have come down and with it the interest rate differential has also come down, resulting in rupee forwards moving to current levels,” said Ashutosh Khajuria, ED & CFO, Federal Bank. The three-month NDF cooled off by nearly 25 paisa in the two trading sessions till Wednesday.

Ananth Narayan, professor of finance at SPJIMR, said expectations of the rupee remaining stable keep going on, as US interest rates have come down with expectations of a rate cut. However, the rupee currently is overvalued by nearly 20%.

In the spot markets, the rupee appreciated by 12 paise to close at 68.45, primarily on account of Federal Reserve Chairman Powell re-enforcing the possibility of a rate cut.

“Rupee strengthened along with the emerging market peers… US rate cut probability has risen after Powell made a direct reference to the possibility of bigger than 25 bps rate cut this month in testimony. Rupee has resumed its uptrend after five days of consolidation. Resistance for the rupee is seen somewhere around 68 levels,” said VK Sharma, head of PCG and capital markets strategy, HDFC Securities.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, dropped 0.23% to 96.87.

Brent crude futures, the global oil benchmark, spurted 0.24% to $67.17 per barrel amid reduced US inventories and geopolitical tensions.

According to provisional data from the BSE, FPIs pulled out nearly $46 million from Indian equities on Thursday.

The most traded 10-year bond — yielding 7.26% — fell by 5 basis points (bps) to close at 6.49% on Thursday to nearly a 20-month low. Yields have been settling down as foreign investors bought bonds worth $877 million from the Indian bond markets in the eight trading session till July 10.

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