MUMBAI: The Indian rupee weakened on Friday and for the week as global risk-off sentiment added to pressure from unfavourably skewed hedging and investment flows, keeping the currency pinned near its record low.
The Reserve Bank of India likely intervened across the spot, NDF and futures markets to stabilise the currency, traders said. The rupee closed at 88.7425 per US dollar, down about 0.1 percent on both the day and week.
Global markets were under strain after hawkish Federal Reserve commentary dampened expectations of a US rate cut next month. India’s benchmark equity indexes, the BSE Sensex and Nifty 50 though, bucked the trend with a 0.2 percent rise compared to the near 2 percent drop in MSCI’s gauge of Asian shares outside Japan. The rupee hovered in touching distance of its all time low at 88.80 through the day’s session but averted steeper losses on account of the central bank’s market intervention.
The currency has held on the stronger side of that level since Sept. 30, supported by stepped-up RBI defence that has also kept volatility expectations contained.
Asian currencies were trading mixed and the dollar index was steady at 99.2. While the US government shutdown has concluded, investors continue to fret over gaps in economic data that could delay or even derail future policy easing. Money markets are currently pricing in a near 49 percent chance of a Fed rate cut next month, down from above 60 percent earlier in the week.
“The bar for a December cut has risen when hearing Fed officials. While the move in the dollar fits our bearish view, it feels a bit premature and at risk of rapid reversal should the initial batch of US data prove not as bad as seemingly priced in,” ING said in a note.