Informist, Thursday, Feb 1, 2024
By Sourabh Kumar and Vaishali Tyagi
MUMBAI – The rupee closed at a two-week high against the dollar today, as a few foreign banks sold the greenback for foreign fund inflows into the debt market after the announcement of the 2024-25 (Apr-Mar) Interim Budget, dealers said. “Selling pressure from foreign banks was there today,” a dealer with a private bank said. “People were looking at the Budget, and most of the inflows came in the bond market.”
After moving in a range of around 10 paise, the rupee closed at a two-week high of 82.9650 a dollar against 83.0425 on Wednesday. The Indian currency touched a low of 83.0275 a dollar during the day.
The rupee started moving up and touched a high of 82.9225 a dollar at 1152 IST after Finance Minister Nirmala Sitharaman announced the country’s fiscal deficit numbers. The Interim Budget projected the fiscal deficit for 2024-25 (Apr-Mar) at 5.1% of the GDP. An average of estimates of economists and market participants polled by Informist saw the fiscal deficit for the next financial year at 5.3% of GDP. The government also lowered the fiscal deficit target for the current financial year to 5.8% of GDP from 5.9% earlier. Before the announcement of the fiscal deficit numbers, the rupee was trading at around 82.9900 a dollar.
“We continue on the path of fiscal consolidation, as announced in my Budget speech for 2021-22, to reduce the fiscal deficit below 4.5% by 2025-26,” Sitharaman said while presenting the Interim Budget in Parliament.
The government’s capital expenditure, closely watched by the market, was not as high as expected, so it did not have much impact on the rupee, dealers said.
The Interim Budget pegged the government’s capital expenditure in 2024-25 at 11.11 trln rupees, up 16.9% from the revised estimate of 9.50 trln rupees for 2023-24. The government today revised downward its capital expenditure for the current financial year ending March to 9.5 trln rupees.
“Capex was not much of a mover today, but when the fiscal deficit figures came, the rupee rallied a bit touching today’s high,” a dealer with a state-owned bank said.
As the rupee appreciated, some banks stepped in to buy the greenback, likely for importers, who wanted to take advantage of the relatively lower dollar/rupee levels, limiting gains in the Indian unit, dealers said. Some speculated that the Reserve Bank of India also bought the greenback in order to curb volatility in the exchange rate and replenish its foreign exchange reserves.
Gains were also limited by a strong dollar index, dealers said. The dollar remained firm after the US Federal Open Market Committee kept the Federal funds target range unchanged at 5.25-5.50% for the fourth consecutive meeting.
Fed Chair Powell hinted that the FOMC has not yet begun to consider cutting rates. “We’re not really at that stage, there was no proposal to cut rates,” Powell said. “We weren’t actively considering moving the federal funds rate down.” Market participants have now shifted their attention to the Fed’s May policy meeting for rate cuts.
At 1737 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 103.65 compared with 103.54 on Wednesday. It was at 103.41 on Tuesday.
Meanwhile, a fall in crude oil prices supported the Indian unit. At 1642 IST, the April contract of the Brent crude oil on the Intercontinental Exchange was at $81.23 a barrel, down from $81.71 a bbl on Wednesday and $82.87 a bbl on Tuesday. Market participants are now looking forward to the US employment report for January scheduled on Friday.
FORWARDS
Premiums on the one-year dollar/rupee forward contracts fell, despite a fall in US treasury yields after the FOMC meeting outcome, dealers said.
The benchmark 10-year US Treasury yield fell after the US Federal Open Market Committee meeting, where the target rate was kept unchanged at 5.25-5.50% for the fourth consecutive meeting. Premiums on forwards of a currency pair are reflective of the interest rate differential between the two countries.
Market participants see strong technical resistance for the one-year forward premium at 1.80%. The premium on the one-year, exact-period dollar/rupee forward contract was 153.58 paise, against 155.02 paise at Wednesday’s close. On an annualised basis, the premium was 1.85%, against Wednesday’s close of 1.86%.
OUTLOOK
On Friday, the rupee will take cues from movement of the dollar index and crude oil prices, dealers said.
“The Budget was a non-event but we expect debt inflows to continue supporting the rupee,” said a dealer with a state-owned bank. “RBI will continue to be the main player.”
During the day, the rupee is seen in a range of 82.90-83.30 a dollar, with key technical resistance pegged at 82.90 a dollar.
India Rupee – World FX: Dollar firm as Fed hints no rate cut in Mar
MUMBAI – The dollar gained strength as US Federal Reserve Chair Jerome Powell hinted that the Federal Open Market Committee has not yet begun to consider cutting rates. On Wednesday, the FOMC kept the federal funds target range unchanged at 5.25-5.50% for the fourth consecutive meeting.
“We’re not really at that stage, there was no proposal to cut rates,” Powell said during the post-policy press conference. “We weren’t actively considering moving the federal funds rate down.” Following Powell’s comments, the market remained divided on March rate-cut bets.
Fed fund futures traders gave only a 35.5% chance, down from 52.8% on Tuesday, that the central bank may cut interest rates by 25 basis points in March, according to the CME FedWatch Tool. At 1606 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 103.71 compared with 103.54 on Wednesday. It was at 103.41 on Tuesday.
The Australian dollar slipped 0.6% against the US currency as bond traders increased their expectation of early interest rate cuts by the Reserve Bank of Australia. The euro slipped 0.2% against the greenback.
The pound sterling fell 0.4% against the dollar ahead of the Bank of England’s interest rate decision due later today. The British central bank is expected to leave the benchmark interest rate unchanged at 5.25%. Investors will keep an eye out on BoE Governor Andrew Bailey’s press conference after the monetary policy review meeting.
Standing as an outlier, the Japanese yen rose 0.1% against the greenback. (Vaishali Tyagi)
India Rupee: A tad up as Budget pegs FY25 fiscal gap lower than view
MUMBAI – The rupee remained slightly higher against the greenback today after the Interim Budget pegged the fiscal deficit for 2024-25 (Apr-Mar) at 5.1% of GDP, lower than market expectation. The Interim Budget lowered the fiscal deficit target for 2023-24 (Apr-Mar) to 5.8% of GDP.
During the Interim Budget speech by Finance Minister Nirmala Sitharaman, the rupee rose to a high of 82.9225 a dollar. An Informist poll had pegged the fiscal deficit for the next financial year at 5.3% of GDP, and at 5.9% for the current financial year.
Further, some banks sold dollars for foreign fund inflows, which also supported the Indian unit, dealers said. “Nothing much was expected from the Budget and not much impact of it was seen. It (dollar/rupee) just moved little down during the Budget as some inflows were there. The dollar/rupee could not have dropped below 82.92 level as there was likely support for it,” a dealer at a state owned bank said.
Some banks stepped in to buy dollars, likely for importers, who wanted to take advantage of the relatively lower dollar/rupee levels, which limited gains for the Indian unit, dealers said. For the rest of the day, the rupee is seen in a range of 82.90-83.30 against the dollar, dealers said. They pegged the key technical resistance for the Indian currency at 82.90 a dollar. (Vaishali Tyagi and Sourabh Kumar)
India Rupee: Above 83/$ on positive sentiment before Interim Budget
MUMBAI – The rupee strengthened against the dollar on positive sentiment ahead of the Interim Budget today, dealers said. Investors took note of hints from the US Federal Reserve that it has not yet started considering cutting key interest rates, they said. The Indian currency rose above 83.00 rupees a dollar mark and touched a high of 82.96 rupees.
“It (rupee) is purely up on positive market sentiment and expectations from Interim Budget, we need to see what it brings on the table,” a dealer at a state-owned bank said. “About FOMC (Federal Open Marker Committee), investors have seen their decision and now their expectation for rate cut shifts to May.”
The dollar remained mostly firm after the US Federal Open Market Committee kept the Federal funds target range unchanged at 5.25-5.50% for the fourth consecutive meeting. “In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” it said in its policy statement.
Finance Minister Nirmala Sitharaman will present the Interim Budget for 2024-2025 (Apr-Mar) at 1100 IST today. Market participants expect the government to announce an increase in capital expenditure, dealers said. They said there might be a rise in expenditure in the green energy sector, looking at the recent push by the government for a carbon-efficient economy.
In the US, Federal Reserve Chair Jerome Powell hinted that the FOMC has not yet begun to consider cutting rates. “We’re not really at that stage, there was no proposal to cut rates,” Powell said. “We weren’t actively considering moving the federal funds rate down.”
Post Powell’s comments, the market remained divided on March rate cut bets. Fed-fund futures gave as much as a 53.4% chance, up from 40.4% odds on Tuesday that the central bank may cut interest rates by 25 basis points in March, according to the CME FedWatch Tool.
The central bank’s statement also added that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the committee remains highly attentive to inflation risks.
At 0954 IST, the dollar index, which measures the strength of the greenback against a basket of six major currencies, was at 103.55 compared with 103.54 on Wednesday. It was at 103.41 on Tuesday.
Meanwhile, a fall in crude oil prices supported the Indian unit. Crude prices fell on Wednesday as prospects of demand from China, the world’s largest oil importer, fell due to low economic activity in the country. Reduced growth expectations are expected to dampen demand for oil, thereby contributing to a decline in crude prices. A fall in crude oil prices reduces India’s import bill, which supports the currency.
At 0954 IST, the October contract of the Brent crude oil on the Intercontinental Exchange was at $80.92 a barrel, as against $81.71 a bbl on Wednesday and $82.87 a bbl on Tuesday. Prices fell to a low of $80.45 a bbl earlier today.
For the rest of the day, the rupee is seen in a range of 82.90-83.30 against the dollar, dealers said. They pegged the key technical resistance for the Indian currency at 82.90 a dollar. (Vaishali Tyagi)
India Rupee: Expected range for rupee – Feb 1
MUMBAI – Following are the expected support and resistance levels for the rupee today, as forecast by leading banks and brokerages in an Informist poll:
(Vaishali Tyagi)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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