Weekly Forex Market Report : Aug 14th - Aug 18th

The week saw a mixed trend as far as the movement of spot rupee against the dollar is concerned. Due to the RBI’s instructions to the exporters to convert 50% of their balances in EEFC accounts into rupees latest by 23^rd August, the rupee seems to stabilize for now. But when the exporters did not sell dollars in the beginning if the week, there was panic buying by the importers and therefore the rupee weakened in the first half of the week. The dollar will come to the market over a period of time and therefore the appreciation would not be sharp. The detailed report follows:

Friday, Aug 18th

The rupee ended the day at 45.81/82, stronger by 8 paise over its previous close. Dollar sales by the corporates helped the rupee to strengthen. The rupee opened the day weaker at 45.90 and slipped to an intra day low of 45.97 before settling at 45.82/85 range in late morning trades. The market opened with the expectations that the exporters would come and sell dollars but when it didn’t happen, the rupee started to fall. As soon as the rupee touched 45.97, the exporters came to the market and started selling dollars, which helped it to recover. There was good supply then but the state run banks were absorbing all the supplies. This was largely done on behalf of the RBI. The rupee recovered during the day to the 45.70 levels but could not sustain these gains and lost ground around the close of trading.

Thursday, Aug 17th

The rupee ended the day sharply weak against the dollar, down 20 paise from its previous close, at 45.89/90. Panic buying by the corporates took its toll on the rupee. The rupee opened the day weaker at 45.72/75 but a state run bank sold dollars, which helped it to stabilize at 45.73/75 level. It was stable until afternoon when the panic gripped the market and the banks started buying on behalf of the importers and the corporates. It fell to 45.88 due to this and then settled at this level. The state run banks stayed away from the market at this level and did not sell any dollars to prevent the rupee from falling. Though exporters have been instructed by the RBI to convert their balances in EEFC account into rupees, yet most of them have not done that. Therefore the supplies of the dollars were still scarce in the market and the importers started to panic.

Wednesday, Aug 16th

The rupee ended the day marginally firm at 45.70 against the dollar. The rupee opened the day at 45.69/70, and was rangebound for most part of the day and finally closed at 45.70. It has stabilized to some extent after the RBI’s directive to the exporters to sell dollars held in their EEFC accounts. As a result of this, the dollars will enter the market over a period of time and the appreciation will not be sharp. The volumes were thin on Tuesday. There were some dollar bids towards the end of the day from the import hedgers, which pushed the forwards up. The one-month forward premium ended the day at 5.66%.

Tuesday, Aug 15th

Holiday

Monday, Aug 14th

The rupee ended the day at 45.72 against the greenback, stronger by 8 paise against its weekend close amid volatile trades. The rupee opened virtually unchanged from its weekend close at 45.81, but started falling and touched the day’s low of 45.91/92. Then the RBI announced some measures to curb the volatility in the market. The RBI  released a circular in the morning asking the exporters to reduce the balances in their EEFC accounts by 50%, latest by August 23^rd. The apex bank estimated the total balances under the scheme to be $ 2 billion. This move of the RBI would bring about $ 1 billion to the market over the next two weeks. The RBI’s move immediately had its effect on the rupee. It started strengthening against the dollar to settle in the range of 45.71– 45.75 range before closing at 45.72. The forwards also tracked the rupee and closed higher. The six-month forward premium closed at 4.06% as against its previous close of 4.60%.

Rajneesh Mittal