Indian rupee ends marginally down, far forward premiums drift higher

MUMBAI: The Indian rupee ended a choppy trading session modestly weaker on Wednesday, with corporate dollar appetite and likely intervention by the Reserve Bank of India tugging the currency in one direction and another.

The Indian rupee closed at 90.2950 per dollar, down slightly from its close of 90.19 in the previous session.

The local currency touched a peak of 90.03 in early trading as central bank intervention dovetailed with foreign banks’ dollar sales, but its gains were eroded by a pick up in corporate hedging demand thereafter.

Meanwhile, dollar-rupee far forward premiums rose, with the 1-year implied yield touching a peak of 2.78%, its highest since late-December, before cooling slightly.

Corporate hedging interest alongside positional adjustments following the results of the RBI’s $10 billion buy/sell FX swap contributed to the rise in far premiums, a trader at a bank said.

Indian benchmarks lagged regional peers, with Nifty 50 dipping 0.3% while MSCI’s gauge of Asian shares outside of Japan rose 0.5%.

Asian currencies, meanwhile, were flat-to-modestly stronger. The Japanese yen fell to its weakest level in a year-and-a-half against the dollar, prompting traders to consider the possibility that Japanese officials may step in to prop up the currency.

The dollar index was a tad lower at 99.1, with markets awaiting remarks from a slate of U.S. Federal Reserve officials scheduled to speak later in the day.

Focus will also be in on developments surrounding the Trump administration’s threat of indictment against Fed Chair Jerome Powell, which Powell has called out as intimidation aimed at pressuring the Fed to lower rates.

“This is a ‘slow-burn’ negative for the U.S. dollar that isn’t going away. It will surely be an incentive for global reserve managers to continue reducing their holdings of US dollars in reserves,” MUFG said in a note.