Weekly Forex Market Report : Aug 7th - Aug 11th
The week saw rupee touching its new all time intra day lows and closings. In fact, the rupee went to the extent of crossing the 46/$ level, albeit briefly. The sentiment in the market remained bearish for the entire week. There was huge dollar demand from the importers and the corporates. Also in the second half of the wek, there was demand from the banks, who had to cover their short positions. During the week, some corporates sold their dollar receivables, which saw the rupee firming up on Wednesday. Towards the end of the week, the RBI asked major banks to report the balances in excess of $ 1 million held by the exporters in their EEFC accounts. This saw the rupee rallying from its intra day of low 46.08 to touch an intra day high 45.70. The detailed report follows:
Friday, 11th August
The rupee ended the day at 45.80/82, a gain of 5 paise over its previous close after touching a new intra day low of 46.08. The market witnessed extremely volatile trades causing rupee to touch an intra day low of 46.08 and an intra day high of 45.70. The huge volatility enabled some banks to make a killing in the market. The rupee opened the day at 45.85/90 but immediately slipped to 45.96/97 as the importers started buying dollars. When the rupee touched an intra day low of 46.08, the RBI asked the banks to report the balances in excess of $ 1 million held by the exporters in their EEFC accounts. The rupee immediately bounced back and was trading at 45.70/80 range. There were expectations that the exporters would finally be selling. However, the RBI hasn’t asked the exporters to offload the balances in their EEFC accounts. The exporters are allowed to hold the balances in their EEFC accounts for a maximum period of 180 days but the operators said that some of them hold balances for a period more than the statutory maximum.
Thursday, 10th August
The rupee ended the day at a new all time low of 45.86/87 to a dollar, down 24 paise from its previous close. Panic buying by the importers and short covering by the banks pulled the rupee down. The rupee opened at 45.65/68 and was quoting 45.63/64 in the morning deals after some banks sold dollars on expectations of inflows during the day. The market was expecting exporters to come to the market to sell dollars but that didn’t happen as the exporters chose to wait until the rupee settled at a more stable level. In the afternoon, the importers started buying dollars and the rupee came under pressure and during the same time, the banks also started short covering themselves. As a result of this, the rupee fell sharply. The RBI chose to stay out of the market under these circumstances.
Wednesday, 9th August
The rupee ended the day at 45.62/63, stronger 11 paise against its previous close against the greenback, after touching a new all time low of 45.77. Heavy dollar sales by the State run banks, on behalf of the RBI propped up the rupee. The rupee opened the day at 45.75/80 and immediately slipped to 45.77 in the early deals, but then some state run banks came to the market and sold dollars, which helped the rupee to recover. Following sales by the banks, the exporters also came to the market and sold their dollar receivables. Reliance and Infosys were among the corporates who sold dollars in the market today.
Tuesday, 8th August
The rupee lost further ground against the greenback on Tuesday, ending the day at 45.73/74, down 18 paise from its previous close. In the last two trading sessions alone, the rupee lost 31 paise. The rupee opened the day at 45.57/59 and immediately fell to 45.65 level in morning deals. By afternoon, it was quoting at 45.70 level. The market continued its bear hug because the exporters chose to stay out of the market and wait on expectations that the rupee will fall further. After the close of the market, there were rumors in the market that the RBI is considering an intervention in the market through SBI on Wednesday. The RBI’s strategy of controlling the free fall in the rupee by hiking the repo rates does not seem to be working as the rupee continued to fall even when it fixed a cut off rate of 15% for 3–day repos. There were expectations in the market that the RBI would set a cut off at 16 – 18%. Forward premia ended lower after the yields on repos were set than lower than expected level.
Monday, 7th August
The rupee hit a new low of 45.58/59 against the Greenback on Monday amid heavy dollar demand from the Corporates. The rupee recovered marginally towards the closing and ended the day at 45.55/56, showing a net loss of 13 paise over its weekend close. There was huge dollar demand from the Corporates and the importers on expectations of the rupee weakening further. The dealers were of the view that unless there is selling by Banks on behalf of the RBI, the rupee will continue its Southwards journey. Even the RBI’s hiking the cut–off rates at its reverse repo auction window didn’t help. The RBI hiked the cut off rate for its 4-day repo auction to 12% and 12.5% for its 1-day repo auction, but it failed to prop up the rupee.
Rajneesh Mittal