How rupee plunged to a new lifetime low at 82.70/$

The Reserve Bank of India (RBI) is estimated to have sold about $1 billion on a day the US financial markets are shut. The RBI could not be immediately contacted for comments.

The rupee hit 82.70 a dollar during the day’s trading when Mint Road started selling dollars via select banks. This erased losses, with the local unit closing a tad higher at 82.32 versus 82.33 last Friday, show Bloomberg data.

“Dollar strength continues to weigh on emerging market currencies, including the rupee, amid a raft of global worries,” said Kunal Sodhani, vice president, Shinhan Bank. “Global inflation worries are still persisting ahead of upcoming data later this week.”

With a market holiday in the US for bonds and currency, the local currency market was less liquid Monday, which in turn helped generate a faster result making RBI intervention more effective with fewer resources. On a volatile day, a bout of $2-3 billion intervention even takes time to stop the rupee’s extending losses.

“This helped the central bank to cut the unit’s slide against the greenback,” said Sodhani.

Despite the rupee’s new lifetime low, the currency remained the best performing in Asia along with the Hong Kong dollar, Malaysian ringgit and South Korean won.

International investors extended their rush for dollar-backed assets dumping emerging market securities, including those from India. This Thursday, the US will announce its September inflation data and monthly jobless claims, considered key data points the US Federal Reserve will use to decide on the future trajectory of interest rates.

European Central Bank policymakers, too, batted for aggressive rate increases amid the looming threat of inflation.

“The rupee’s slide against the dollar is fanning worries among corporates with a fair share of overseas liabilities,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors.

“It is now reflecting in the one-year forward premium, which crossed a key threshold amid rising demand for covering currency risk,” he said.

The 12-month forward premium surged to 3.03% Monday compared with 2.65% on September 23 show data compiled by Finrex.

There is arbitrage of about 75 paise between onshore and offshore in the one-year contract segment, which is also taking onshore premiums higher, said chief dealer.

The onshore one-year exchange rate was quoting 84.75 versus 85.60 offshore at the time of writing this article.

Foreign portfolio investors sold a net of Rs 2,139 crore or around $260 million in local securities, show BSE provisional data.

Over a week’s time, the dollar index, which measures the unit against other major currencies, increased 2.58% to nearly 113.

Similarly, the US Treasury benchmark yield spiked as much as 34 basis points pulling prices down in just the last five trading sessions.

A narrowing differential between US bond and Indian bond yields diminishes incentives for overseas investors betting on emerging markets like India.

This calendar year, the rupee has remained the fourth-best-performing Asian currency with the local unit losing about 9.7% to the US dollar.

In the overseas derivative market known as Non-deliverable forwards (NDF), some market operators are said to have started punting on corporate fundraisings adding to the currency woes, said a Singapore-based dealer.

and Jio collectively are in talks to raise as much as $4 billion via an offshore loan, ET reported Monday.