Rupee near 2-month low on $ demand from oil retailers

Bond yields at three-month high during intra-day trade, recover at close

The rupee on Monday closed at a near two-month low, owing to dollar demand from state-run oil marketing companies (OMCs), which are returning to the foreign exchange market to meet dollar requirements. The weakness in the rupee was despite the Reserve Bank of India (RBI) intervening in the foreign exchange market.

The rupee ended at 63.24/dollar on Monday, against Friday’s close of 62.48/dollar, a fall of 1.22 per cent. It had opened at 63.01/dollar, tracking the non-deliverable forwards (NDF) market.

The government, meanwhile, said irrational sentiments were impacting the currency and it would stabilise soon. “The rupee will settle down,” Finance Minister P Chidambaram told reporters after the rupee touched a low of 63.44/dollar in intra-day trade.    

Economic Affairs Secretary Arvind Mayaram said the rupee would return to the range-bound level seen last week and “this very irrational sentiment will play itself out very soon”. He added currencies in other Asian markets had also weakened in the last two-three days because of the strong data being reported in the US.

In October, the US economy saw the addition of 2,04,000 new jobs, despite a fortnight-long government shutdown.

On Monday’s movement in the rupee, Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai, said, “RBI had intervened in early trade, due to which the rupee appreciated to 62.94/dollar. But the impact did not last due to demand from state-run OMCs.”

The Street expects the rupee to weaken further in the near term, as the full impact of demand from OMCs is seen. Also, by the end of this month, RBI will withdraw most rupee-supporting steps. Therefore, currency dealers feel the rupee would breach the 64/dollar mark soon. In October, trade deficit jumped, rebounding from a two-and-a-half-year-low the previous month, as gold purchases picked up ahead of the festive season, provisional government data showed on Monday. The rise in trade deficit also dampened sentiment.

Meanwhile, tracking the weakness in the rupee government bond yields rose during intra-day trades. However, after the yield on the 10-year benchmark government bond breached the 9% mark, bong buying was seen by traders due to which the yield fell.

The yield on the 7.16% 2023 government bond ended at 8.95% compared with previous close of 8.99%. During intra-day trades it rose to 9.14%, a level last seen on August 19. The yield had ended at 9.23% on August 19.

“Traders started buying bonds when it breached the 9% mark as they found that level attractive. Tomorrow the yield may again rise above 9%. The trading range will be between 8.90% to 9.05%,” said Balginder Singh, government bonds dealer at Andhra Bank.

The street expects an Open Market Operation (OMO) purchase auction of government bonds as every week RBI is auctioning government bonds for a notified amount of Rs 15,000 crore.s 15,000 crore.