Indian rupee hits three-week low as firmer dollar, NDF maturities pinch

MUMBAI: The Indian rupee slipped to a three-week low on Monday as a broadly upbeat dollar pinched Asian currencies, with maturing contracts in the non-deliverable forward also adding to the pressure on the local unit.

The rupee closed at 95.3950 per dollar, down 0.2% on the day. It had touched an intraday low of 95.4750, its weakest level since June 12.

State-run banks were spotted offering dollars intermittently, traders said, signalling the central bank’s intention to avoid a sharp slide in the currency.

A firmer dollar and sustained merchant dollar demand have weighed on the rupee even as the slump in oil prices and regulatory measures to draw dollar inflows have offered comfort.

A revival of arbitrage trades between the onshore foreign exchange market and non-deliverable forwards undertaken by corporates has also weighed on the rupee in recent days.

Traders reckon that a gradual depreciation bias for the rupee may resurface if the currency dips and holds below the 96 mark.

Analysts at Goldman Sachs have revised their rupee forecasts stronger and now expect the USD/INR pair at 94, 95, and 96 in three, six, and 12 months, compared to the  96, 96, and 97 levels previously.

The firm recommends staying short on THB/INR as a relative-value carry trade, and favours a long wager on 30-year bonds supported by the expansion of the Fully Accessible Route bond universe, inflows and structural demand from local pension and insurance companies.

Fully accessible route allows unfettered foreign investments into Indian bonds, and these notes are part of global bond indexes.

Foreign investors have favoured the benchmark 2036 bond over the past two weeks, buying around 76 billion rupees ($796.12 million).

Elsewhere in global markets, stocks ticked higher as the potential for increased energy supplies pulled down oil prices and promised relief from inflationary pressures, while investors awaited a crucial earnings season for the AI sector.