Rupee ended lower, Dollar higher vs. major currencies

Tuesday,   06-Dec-2022   04:05 PM (IST)

The Indian rupee saw its worst trading session in more than two months and ended the session lower at 82.6150/6250 levels compared to its opening at 81.9350/9450 levels after touching the low of 82.6275/6375 levels amid chatter of corporate dollar outflows, while premiums plunged further. Rupee traded in the range of 81.9350-82.6275 levels. Traders said they were caught off-guard by the rupee's sudden decline, prompting a round of stop losses that probably sped up the drop once USD/INR moved above 82. In late afternoon trade, the rupee's losses accelerated as some more dollar outflows were seen on account of debt repayment and investments. Meanwhile, USD/INR 1-year forward premiums sank to 1.64%, their lowest since 2010 and down over 300 basis points (bps) year-to-date. Analysts believe this collapse has implications for the spot rupee as it can further fuel dollar demand and impact carry trades. The rupee, along with other Asian currencies, was weighed by a steady greenback after upbeat U.S. services data overnight raised fears of the Federal Reserve pushing rates higher than what is currently priced in. Indian government bond yields tracked U.S. yields to end higher today further propped by traders cutting positions ahead of the Reserve Bank of India's monetary policy decision due tomorrow morning. Indian shares traded lower today led by a decline in tech stocks, after an unexpected pick-up in the U.S. services activity raised concerns about a prolonged rate-hike cycle by the Federal Reserve. The S&P BSE Sensex fell 208 points, or 0.33%, to end at 62,626, while the Nifty50 closed at 18,643, down 58 points or 0.31%. In the forward segment 1mth, 3mth and 6mth annualized premia ended the day at 1.67%, 1.58% and 1.70% respectively. 

The U.S. dollar index held firm on Tuesday, following its biggest rally in two weeks after strong services data in the United States fuelled expectations for higher interest rates from the Federal Reserve than recently projected. The Australian dollar perked up from near one-week lows after the Reserve Bank of Australia (RBA) raised rates for the eighth time in as many months. The U.S. dollar index, which measures the currency against six major peers, was at 105.24, steady after Monday's 0.7% rally, it’s biggest since Nov. 21. It had dipped to 104.1 on Monday for the first time since June 28. It later reversed course after data showing U.S. services industry activity unexpectedly picked up in November, with employment rebounding. The Federal Open Market Committee decides policy on Dec. 15. Traders currently expect a half-point hike to a 4.25-4.5% policy band and a terminal rate of just above 5% in May. German industrial orders recovered more than expected in October, but that failed to strengthening the euro, flat on the day at $1.0500 after on Monday touching its highest level since late June. The Aussie dollar rose 0.3% to $0.6718, clawing back some of a 1.4% tumble on Monday as the RBA said it was not on a preset course to tighten policy but that inflation was still high. In volatile Monday trading, the Aussie reached a 2-1/2-month peak of $0.6851.