Dollar-selling by exporters, higher forward dollar premia levels and IPO related inflows encouraged the downtrend in the to continue for some time. The currency pair tested the support at 73.80 level, a breach of that level would take the pair to test the next support at 73.50.
Due to thin market conditions and lack of dollar buying interest in the market, the rupee has strengthened. The huge dollar selling interest from exporters and IT companies facilitated the rupee’s uptrend to continue for some time. The depreciation in the forward rupee for 3 to 6-month maturities encouraged the above entities to sell their forward dollars to obtain a favourable exchange rate in those maturities.
The foreign portfolio investors sold equities for USD 1.31 billion in April for the first time since September 2020. We expect the rupee to see more selling interest from FPIs during this month. Besides the Covid Task Force, the CII has also asked the central authorities to impose a lockdown to reduce covid transmission in the country. Till such time, the covid cases peak in the country expected to be in the second-third week of this month, FPIs could continue to repatriate the funds from their equity investments. However, we consider the portfolio equity outflows as a short-term phenomenon.
All the Asian currencies are trading lower today extending their weakness yesterday. After beating all the major gauges globally in April the Taiwanese Weighted Index fell the most by as much as 2.05% so far in the day. The fall in Asian equities is also due to thin trade today as investors were worried about the rising number of coronavirus cases in countries such as India and Brazil as well as other emerging economies. In the current circumstances, the rupee’s uptrend is encouraged by IPO inflows and the rise seems to be unsustainable over the short term.
There was reliable information that RBI undertook sell and buy dollar swaps with Banks for April to July and other maturities out of their forward dollar purchase position. With WFH and scarce staff and other difficulties, the swap market turned volatile. The premium for cash over spot was dealt at 8 paise/USD on Monday equivalent to more than 19% per annum in rupee terms. The forwards for 1 to 3-month maturities ratcheted higher. The 3-month and 6-month forward dollar premia are currently quoted at 7.00 pct and 6.04pct pa respectively. We expect the forwards to remain firm at least till the end of this week. The forward curve is demonstrating a steep inverse pattern at the medium and long-end of the curve.