Rupee Tumbles To 83.70 Per Dollar In Offshore Trade
Over the last several months, the Reserve Bank of India has intervened in the dollar/rupee market at multiple levels to curb a sharp fall in the Indian currency.
The Indian rupee plunged in offshore trade against the U.S. dollar on Friday, on account of increased demand for dollars by corporates to make payments at the end of the financial year, according to currency traders.
After 3.30 p.m. IST, the rupee hit a low of 83.70 per dollar, 27 paise down from the spot market close on Friday. It opened at 83.28 a dollar, as compared with 83.15 at close on Thursday.
"It was primarily a technical move because we are heading into the last week of the financial year. We tend to see a lot of lumpy flows, which can suddenly create big gyrations in the market if the RBI is not present," Anindya Banerjee, vice president (rupee and interest rate derivatives), Kotak Securities told NDTV Profit.
The upcoming week is a truncated one as onshore forex markets will be shut on Monday and Friday, on account of Holi and Good Friday, respectively.
Over the last several months, the Reserve Bank of India has intervened in the dollar/rupee market at multiple levels to curb a sharp fall in the Indian currency. However, the RBI was not seen selling the greenback as actively as the traders would have expected.
This large buying of dollars, in the absence of significant volume in offshore trade, triggered some stop-losses, currency traders said. This resulted in a sharper fall in the Indian rupee against the U.S. dollar.
On Tuesday, which is also the last settlement day for FY24, the RBI is expected to intervene heavily in the spot market to absorb large bouts of dollar outflows, if any, Banerjee said.
The rupee came under added pressure due to a dollar crunch in the currency markets at the end of the year, and also as the RBI took delivery of its $5 billion FX swap two weeks ago, dealers said. This, along with a rush among banks to close their open positions on the dollar after spot market close weighed on the Indian currency, they said.
Some traders expect a weakness in Chinese yuan in the offshore trade to have driven the rupee on a weakening trajectory.
The offshore yuan fell to 7.28 a dollar, registering its lowest level since Nov. 14, 2023. "Taking into account such a weakness in yuan, the rupee might also have looked forward for weakness to maintain export competitiveness without any massive intervention," said Kunal Sodhani, vice president of Shinhan Bank India.
A sharp fall in the rupee in offshore trade created an arbitrage opportunity for traders with the onshore spot rate, thus aggravating the fall in the Indian currency, according to a currency dealer with a large private bank, who spoke on condition of anonymity.
Overnight strength in the dollar across the board also weighed on the rupee, currency traders said.
"After FOMC, the market was suddenly caught short on dollar, as the dollar index had weakened. But, just within 12 hours, it reversed and this led to additional volatility in Asian currencies, and hence, reflected on the rupee," Banerjee said.
The rupee, however, has retracted back to 83.50 a dollar now.
Some traders speculated that the central bank may have curtailed further fall in the rupee through its dollar-selling interventions in offshore trade around 83.70 a dollar.
On Tuesday, the Indian currency is likely to open above 83.50 a dollar, and trade in the range of 83.10-83.80 a dollar.