Rupee breaches 83-level as dollar bears cover bets

The rupee breached the crucial 83 mark on Monday, falling to a 10-month low of 83.07 before paring losses to close at 82.95 to the dollar, thanks to intervention by the central bank, which sold dollars through banks, according to currency market analysts.

So far this year, the rupee has remained relatively stable trading at 82.74 since the beginning of calendar year to Monday’s closing. However, rising global interest rates amid RBI holding repo rate at which it lends to banks at 6.5% and creeping retail price inflation back home has soured sentiment for the rupee, forcing speculators to unwind their short dollar bets.

“Those holding short dollar positions in the offshore, over the counter and the exchange traded derivatives market covered their bets, causing a bre-ach of the 83 level before RBI intervention cushioned the fall and resulted in rupee appreciating from the day’s low,” said Anindya Banerjee, VP (currency & interest rate derivarives) at Kotak Securities.

Banerjee expects the rupee to face more pressure after markets reopen on Thursday on demand from importers.

“Unless RBI intervenes aro-und the 83 mark, rupee could spiral downwards rapidly. The full impact of importer demand for dollars could be felt after Independence Day and Parsi New Year holidays,” he said.

The rupee had hit a low of 83.29 a dollar on 20 Oct 2022.

On the exchange traded markets at NSE, sellers of dollar call options contracts also scurried to close their bearish dollar bets. When a call seller sells a dollar call, she expects dollar to trade below the strike price sold plus premium received from the call buyer. However, if she expects a bullish dollar, she will unwind her positions, which means buying dollar and selling rupee.

Naveen Mathur, director (currencies & commodities) at Anand Rathi, expects rupee to trade between 81.5 and 83 to a dollar. “It’s likely that RBI might have intervened today (Monday) and I think it will def-end the range as if rupee appreciates above 81.5, it will render India’s exports uncompetitive,” Mathur said.