Weekly Forex Market Report : July 31st - Aug 04th |
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The week saw the rupee touching new record intra-day lows due to huge demand for the dollar. For most part of the week the Rupee was above the 45/$ mark and touched as low as 45.5/$ Most of this was genuine demand from the importers and the corporates to meet their foreign currency obligations but there was also speculative demand from the banks after the RBI chose not to intervene even after the rupee touched record lows. The RBI introduced repos having more than 1 day tenure to suck out the excessive liquidity from the market but even it didn’t help much. The RBI came out with a statement on Thursday saying that it would intervene in the market directly or indirectly to check the volatility in the market. The statement was to deal with the issues of rupee’s movements against the other major currencies, the oil and the inflation effect, movement in the forex reserves, timing of the RBI’s decisions, speculative versus genuine demand for foreign exchange and the RBI’s future steps. It also came out with a statement late on Friday saying that the measures announced on July 21st were not meant to give instant results and it would take sometime for these measures to have their effect on the rupee. So we expect the rupee to remain under pressure for sometime until the RBI intervenes in the market either directly or indirectly or till the genuine demand for dollars dries up.
Friday, 4th August The rupee ended the day lower at 45.42/43, down about 6 paise as against its previous close amid heavy dollar demand from PSU banks. The rupee opened at 45.29/30 and immediately fell to 45.40/41 level as importers started buying dollars and exporters chose not to come to the market expecting a further fall in the rupee. The rupee opened firm after the RBI’s announcement yesterday that it would intervene directly or indirectly in the market to check the volatility in the forex market, but it was panic demand from the importers, which caused the rupee to fall. Two state run Banks UCO and BoI were buying heavily in the market and they continued to buy even after the RBI’s repo auction. Thursday, 3rd August The rupee ended the day about 4 paise
weaker at 45.34/37 as against its previous close. After the RBI announced the introduction
of 4 days and 7 days repo auctions, some banks liquidated their long positions, which took
some pressure off the rupee. The rupee hovered at 45.30/33 but soon touched an intra day
low of 45.45 when there were rumors in the market that the RBI was going to come out with
a set of drastic measures, which included major structural changes in the forex market.
Later in the day, the RBI came out with a five-page statement saying that it was not
targeting any particular level for the rupee and there was no specific level at which it
was prepared to defend it through unlimited sale of foreign currency or through the
introduction of tough monetary measures. It further added that it would continue to
intervene directly or indirectly in the market to meet the temporary demand and supply
mismatches. It also said that the clarifications would help market participants to take
decisions that were most conducive to promoting orderly conditions in the forex market. The rupee ended sharply weaker against the dollar at 45.32/33, down 16 paise from its previous close due to sustained dollar demand through out the day. It opened at 45.18/20 and touched an intra-day low of 45.37 before closing at this level. There was huge corporate demand for dollars from Reliance Petro and Maruti Udyog, which put pressure on the rupee. The RBI again chose not to intervene and stayed away from the market. The lack of support from the RBI is also putting immense pressure on the rupee. One senior RBI official said that the central bank was considering introduction of repos of more than one day’s tenure to suck out excess liquidity from the system, which would check the volatility in the market. Tuesday, 1st August The rupee ended Tuesday at its all time record low of 45.15/16 to a dollar down about 14 paise from its previous close. Due to weakness in the rupee, most banks had gone long on the rupee, which further weakened it. The rupee touched an intra-day low of 45.17 before closing at that level. There was some demand for the dollar in the morning from the importers and FIIs, but it was when the RBI didn’t come to the rescue of rupee that the banks started buying dollars and weakened the rupee. There was not much of a genuine dollar demand. Even the exporters didn’t sell their receivables due to falling rupee. They were also waiting for the rupee to settle at a certain level. The dealers were very surprised that the RBI chose not to intervene in a situation like this. The RBI governor made a statement that the rupee ‘s movement against the dollar is only a minor fluctuation and there is no reason to worry about. He also said that the rupee had gained against the Pound and the Euro. Monday, 31st July The rupee ended the day 17 paise down against the Greenback at 45.01/03 and the breach in the psychological barrier seemed to be a more sustaining feature. There was huge dollar demand from State run banks who were buying on behalf of their corporate clients. It opened at 44.875/885 and touched an intra-day low of 45.04 before closing at those levels. There was huge demand since morning as the State run banks were buying on behalf of PSU oil companies to pay for the oil imports. There was also corporate demand for servicing foreign currency loans. The RBI’s measures announced on July 21st to check the volatility in the rupee have been of little help. Even the RBI didn’t intervene when the Rupee fell to those levels. In the forward market, the premium tracked the spot market and closed higher. The six month annualized premia ended the day at 4.37% as against its previous close of 4.20%. Rajneesh Mittal
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