Date: June 16, 2023
Place: New Delhi, India
The Indian rupee made a significant stride, surpassing the crucial 82 per dollar mark on Friday. This surge was driven by diminished expectations of a hawkish U.S. Federal Reserve in the coming months. However, the gains were limited due to importers rushing in to hedge at levels not seen in over five weeks.
At 10:46 a.m. IST, the rupee was trading at 81.9250 per dollar, compared to the previous session’s closing rate of 82.1750. It reached an intra-day high of 81.8825, marking its strongest level since May 9.
Anindya Banerjee, the Head of Research for FX and Interest Rates at Kotak Securities, commented, “The post-FOMC (Federal Open Market Committee) rally in USD is fading fast,” suggesting that the recent rally in the U.S. dollar was losing momentum.
The dollar index, which measures the value of the U.S. dollar against a basket of major currencies, was trading close to a five-week low following a significant decline in the previous session. This decline was prompted by a hawkish stance from the European Central Bank (ECB), indicating potential interest rate hikes.
Further pressuring the dollar were U.S. economic indicators that led traders to speculate that the Federal Reserve may not implement additional rate hikes, despite previously signaling at least a 50 basis point increase this year.
Despite the rupee’s upward momentum, a dealer at a private bank cautioned that it might be challenging for the currency to surpass the 81.80 level, as importers are likely to engage in hedging activities to mitigate their risks.
Additionally, it was observed that public banks were already purchasing dollars, possibly on behalf of importers. These transactions contributed to curbing further appreciation in the rupee.
The Indian rupee has witnessed a 0.7% increase during the current week, benefiting from inflows of corporate dollars.
Amit Pabari, the Managing Director of CR Forex, predicted that the rupee’s ongoing gains might be short-lived, with a potential reversion towards the 82.50 level. Pabari attributed this expected shift to lower premiums, which could prompt importers to hedge their risk in the near term.
Meanwhile, the rupee’s forward premiums, an indicator of future exchange rates, slightly increased to 1.74% after reaching their lowest point this year in the previous session at 1.69%.
Despite importers’ hedging actions and fluctuations in the rupee’s forward premiums, market observers will closely monitor the currency’s performance to gauge its resilience and potential impact on the domestic economy.
Please note that the information provided is based on the current market conditions and is subject to change as new developments unfold.
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