Mumbai: Dollar selling by the Reserve Bank of India (RBI) wrenched the rupee off the record lows hit on Thursday, enabling the local currency to snap a three-day losing streak, though worsening economic conditions made investors cautious about its near-term outlook.
The RBI’s dollar selling sparked a slew of stop-losses on long dollar position by market players who had expected the currency, which had plunged to a record low of 54.30 against the dollar, to hit 55 per dollar, traders said.
The rupee ended near the day’s highs of 53.64/65 per dollar, marginally stronger than Wednesday’s close but well above the record low plumbed in early deals.
Even with the RBI’s intervention, the rupee has lost more than 18% of its value since the July highs.
“Nationalised banks likely triggered the stop losses by selling dollars around the levels of 54.10/15, following which the market momentum took care of the rest for the rupee,” said Hari Chandramgathan, a forex dealer with Federal Bank in Mumbai.
The RBI usually intervenes via state-run banks and its intervention came as a surprise to market participants, particularly exporters, who have become accustomed to its absence from the currency markets in recent months.
One trader at a large textile exporter said the effect of stop losses being triggered was “sharp.”
That encouraged software and diamond exporters, who had held back their dollar receivables anticipating further decline, to hedge their flows.
Vikas Babu, a trader at Andhra Bank, said the rupee could steady for a while as market players book profits after the currency’s fall of more than 4% this week.
However, any comfort for the rupee is still some time away given India’s worsening economic growth outlook and a widening trade gap.
“It (the rupee) doesn’t seem to have a circuit breaker and global environment for risk assets is likely to remain poor near term,” said Sean Callow, senior currency strategist at Westpac Banking Corp in Sydney.
Offshore non-deliverable forwards (NDFs) were indicating further weakness, with the one-month rupee NDFs at around 54.18.
Callow said the rupee could test 55 against the dollar in the short term.
However, the RBI’s policy review on Friday could offer some succour to the panicky foreign exchange market.
While markets do not expect an interest rate cut, analysts expect the central bank to signal a stronger resolve to intervene to hold up the beleaguered currency.
“We cannot rule out one more hike if the rupee extends its free-fall beyond 56 (to the dollar),” said J. Moses Harding, head of asset-liabilities committee at IndusInd Bank.
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