Rupee ended lower, Dollar lower vs. major currencies

Friday,   02-Dec-2022   03:58 PM (IST)

The Indian rupee was unable to sustain its positive opening and ended the session lower at 81.3175/3275 levels compared to its opening at 81.10/11 levels after touching the low of 81.32/33 levels weighed by a persistent demand for dollar from corporates. Rupee traded in the range of 81.0925-81.32 levels. Rupee forward premiums continued to drift lower with the 1-year yield falling to near 1.90%. Falling U.S. and India interest rate differentials alongside likely buy/sell swaps by the Reserve Bank of India in near-term forwards pushed premiums to levels last seen more than a decade back. Premiums are likely to be volatile next week, with the Reserve Bank of India policy decision due on Wednesday. Indian government bond yields inched higher after easing the day before, as demand at the weekly debt auction fell short of expectations, leading to profit booking. The frontline indices snapped their eight-day winning streak run as investors preferred to take home some profits ahead of the weekend and upcoming RBI policy next week. The S&P BSE Sensex ended 416 points lower at 62,869. The NSE Nifty 50 settled at 18,696, down 116 points. In the forward segment 1mth, 3mth and 6mth annualized premia ended the day at 1.73%, 1.84% and 2.00% respectively. 

The dollar was pinned near 16-week lows against a basket of major currencies on Friday ahead of key U.S. labour market data, while the Yuan was set for its biggest weekly gain since China revalued its currency in 2005. The dollar index fell 0.1% to 104.55, having earlier touched its lowest level since June 29 at 104.36. The index slipped over 5% last month on expectations that the Federal Reserve would start to slow its pace of rate hikes from the December meeting. Data released on Thursday supported that view, with the core personal consumption expenditures (PCE) price index coming in below expectations. The Fed tracks the PCE price indexes for its 2% inflation target. Fed chair Jerome Powell said on Wednesday that it was time to slow rate hikes, noting that "slowing down at this point is a good way to balance the risks." Investors are now turning their attention to nonfarm payrolls data on Friday for clues on how rate hikes have affected the labour market. The prospect of the Fed slowing its pace of monetary tightening has rejuvenated investor sentiment and sent the dollar tumbling after four straight 75-basis-point (bps) hikes that fuelled much of the greenback's ascent this year. Futures traders are now pricing for the Fed's benchmark rate to peak just under 5% in May, as compared to a top of over 5% before Powell's comments on Wednesday, according to data from Refinitiv. Meanwhile, China's Yuan rose 0.4% against the dollar to 7.0294. The Yuan was set for its biggest weekly gain since China revalued the currency in 2005, according to Refinitiv data, buoyed by expectations of an exit from China's zero-COVID policy and a slower pace of interest rate hikes from the Fed. The dollar was 1% lower at 133.98 yen, slipping to its lowest level since Aug. 16. The euro was little changed at $1.0527, after gaining 1.1% on Thursday. European Central Bank President Christine Lagarde warned on Friday that some European governments' fiscal policies could lead to excess demand, and that fiscal and monetary policies need to work in synch for sustainable, balanced economic growth.