The rupee extended its winning streak on Thursday tracking the fall in US yields and crude oil prices, said dealers. The local currency settled at 95.06 per dollar, against the previous close of 95.16 per dollar. During the day, the rupee touched the intraday high of 94.86 per dollar.
The domestic currency has advanced 1.8 per cent this week, after it came close to its record low last week. During the current financial year, it has depreciated by 0.26 per cent so far, and 7.35 per cent in the last one year.
Market participants said the central bank has been mostly cutting its short dollar positions over the past three days, to bring the currency to a more stable level.
“The rupee was supported by easing crude oil prices, the unwinding of dollar long positions, and strong domestic risk appetite. However, early intraday gains were partially pared, amid a widening trade deficit and robust dollar demand from importers,” said Dilip Parmar, senior research analyst, HDFC Securities.
Dealers said inflows tied to the Jio Platforms initial public offering (IPO) are expected to hit the market from Monday, while the Fairfax deal could bring in around $6 billion-$7 billion. These flows could take the rupee to the 94 per dollar-94.50 per dollar range.
The dollar index eased from an 18 month high to around 102, as a sharp fall in US Treasury yields weighed on the greenback. Markets scaled back expectations of a Federal Reserve rate hike this month, after cautious comments from officials, despite hotter-than-expected US inflation. Brent crude fell about 2 per cent to around $103.78 per barrel from Wednesday’s settlement of $106.06 per barrel, on reports that the US could ease restrictions on certain Russian oil tankers and as exports from West Asian producers recovered. However, attacks on commercial vessels near the Strait of Hormuz and the conflicts in West Asia and between Russia and Ukraine limited the fall in prices.
Meanwhile, forward premiums rose to multi-year highs after the Reserve Bank of India’s (RBI’s) latest foreign exchange measures, including restrictions on forward dollar purchases, reduced liquidity and prompted banks to unwind positions.
Banks that used to receive premiums have stopped doing so over the past three days, which pushed premiums sharply higher, dealers said. The one-year implied hedging cost rose to around 4.6 per cent, its highest since January 2022, while the three-month implied cost reached about 7.2 per cent. The jump is raising hedging costs for importers and companies with dollar liabilities, even as the spot rate has stayed steady near 95 per dollar.
“Banks’ ALM desks which use to receive premiums have stopped doing so since the last three days, taking premiums to dizzying heights never seen in the last 15 years, mainly due to the Foreign Exchange Risk Reserve (FERR) charges,” said Anil Kumar Bhansali, head of treasury, Finrex Treasury Advisors.
The FERR is a reserve required to be maintained by banks with the RBI, in respect of specified foreign exchange derivative contracts involving INR, and foreign exchange derivative contracts involving INR undertaken by a bank for hedging the currency risks of its own assets and liabilities where the bank is purchasing foreign currency against the INR.
