The rupee settled at a fresh closing low versus the dollar on Thursday as an unexpectedly strong US GDP estimate sparked speculation that much-awaited monetary policy easing by the Federal Reserve would be pushed further into 2024 as growth in the world’s largest economy remains firm.
The rupee closed at 83.3938/$1 a new record closing low. The domestic currency, which has depreciated by 0.8% against the US dollar on a closing basis so far in 2023, had closed at 83.3262/$1 on Wednesday.
US government data released after Indian market hours on Wednesday showed that US GDP grew at 5.2% annualised in Jul-Sep, higher than the 4.9% reported earlier. A Reuters poll had estimated that the US Jul-Sep GDP growth would be revised up to 5%.
The dollar index, which measures the US currency against six major global currencies, climbed to a high of 103.35 during domestic trading hours, higher than around 102.70 the previous day, currency traders said.
“The US Dollar staged a modest rebound backed by stronger growth numbers and against the backdrop of a mild recovery attempt in US yields across the curve. Further weakness in Euro came in response to disappointing figures from the German labour market,” Kunal Sodhani, vice-president, Shinhan Bank said, predicting a broad range of 83.20-83.60/$1 for the rupee in coming days.
Dilip Parmar, research analyst at HDFC Securities, also cited corporate dollar outflows and an uptick in global crude oil prices as factors that had attributed to the rupee’s weakness on Thursday. “Spot USD/INR is expected to swing higher (depreciate) towards the upper range of 83.50/$1 and hold the support at 83.10/$1,” he said.
ACTION SHIFTS TO OPTIONS
Citing strong market interventions by the Reserve Bank of India over the past year and a drop in trade volumes towards the end of the year, currency traders said that much of the activity in the market had shifted to the derivatives segments.
“The RBI’s intervention isn’t there so much the market right now for the simple reason that the overall activity has reduced considerably,” said Kotak Securities’ vice president for currency derivatives, Anindya Banerjee.
Given a sharp drop in the dollar-rupee forward premia due to the shrinking rate differential between the US and India, those looking to bet against the dollar did not consider current levels lucrative enough to sell the greenback. On the other hand, betting strongly in favour of the dollar was risky considering signs of lower inflation in the US, which supports the case for a rate cut by the Fed.
“The only trade that is happening now in the market is options. That is basically shorting volatility. It is done through the derivatives market primarily on the exchange which is why you don’t see an impact on the spot market and hence RBI is not impacted,” Banerjee said.
