Rupee hits three-week low as OMC dollar demand, NDF maturities weigh

The rupee slipped to a three-week low as dollar buying by oil firms and NDF demand offset support from lower crude oil prices

The rupee fell to a three-week low on Monday as persistent dollar buying by oil marketing companies (OMCs), demand linked to maturing non-deliverable forward (NDF) contracts, and a rise in the dollar index outweighed support from lower crude oil prices, dealers said. The Indian unit depreciated in five of the last six trading sessions.

 

The domestic currency settled at 95.40 per dollar against the previous close of 95.22 per dollar, the lowest level since June 11 this year, after touching an intraday low of 95.48 per dollar. The dollar index strengthened to around 101, while most Asian currencies also traded lower.

 

On the other hand, government bond yields softened, tracking the fall in crude oil prices. The yield on the benchmark 10-year government bond settled at 6.69 per cent, the lowest since March 13, against the previous close of 6.71 per cent.

 

Market participants said state-run and private oil companies remained aggressive buyers of dollars to meet crude oil payment obligations, making importer demand the biggest source of pressure on the rupee during the session. A foreign bank also purchased dollars, while exporter selling remained limited, adding to the imbalance in the market.

 

“Oil companies bought dollars while a foreign bank also bought dollars, while sellers were fewer. The dollar index rose while Asian currencies were a tad lower than their closing on Friday. Brent oil was down, keeping that much pressure off the rupee, but as the fragile ceasefire continues, it seems prudent for oil companies to buy dollars in case the fighting intensifies again,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.

 

Demand arising from the maturity of NDF contracts further boosted dollar buying in the market, further weighing on the local currency. The RBI's outstanding net short dollar position in the forward market increased to a record $106.66 billion at the end of May from $95.30 billion at the end of April. Of the $106.66 billion net short dollar position, $19.82 billion was in one-month contracts, $8.86 billion in one- to three-month tenures, $21.90 billion is set to mature between three months and one year, and the remaining $56.07 billion was in contracts of more than one year.

 

“Oil companies continued to build dollar positions as a precaution amid the fragile ceasefire in West Asia, fearing that any renewed escalation could push crude prices higher,” said a dealer at a state-owned bank.

 

Market participants expect the rupee to remain in the 95.00-95.75 per dollar range on Tuesday unless exporter selling or central bank intervention intensifies.

 

Meanwhile, forward premiums softened, with the one-month premium easing to 2.65 per cent and the one-year premium declining to 2.80 per cent.

 

Since the onset of the Iran conflict, the currency has depreciated by 4.64 per cent, reflecting persistent pressure from dollar demand and global uncertainty. However, the benchmark 10-year government bond yield was 35 basis points lower in FY27 so far, as domestic bond yields have remained relatively stable despite the rupee's weakness.