How traders make good use of rupee movement against dollar


The Reserve ‘s (RBI) increasingly visible interventions in the currency markets have helped the rupee from breaching the 80 mark to the dollar in Mumbai, but a degree of apparent predictability in Mint Road’s approach has led a section of foreign exchange traders to short the local monetary unit once central bank USD sale eases, thereby capping its gains.

“Over the last few days, the central bank intervention has been stronger than usual, arresting the rupee’s slide beyond a point,” said Parul Mittal, head of financial markets, Standard Chartered Bank India.

“While this helps abate unnecessary fear-mongering, this has been paving the way for higher intra-day trading activities. The rupee’s resistance has become prominent among emerging market currencies.”

Some traders have shorted the rupee, dealers said, in anticipation that central bank intervention will ultimately provide a floor around the 80 mark to the dollar. The central bank didn’t respond to ET’s mailed queries.

The rupee fell to a new lifetime low of 79.98 to a dollar, just shy of the psychological mark of 80. Select state-owned banks were seen selling dollars on behalf of the RBI, helping prevent the local unit from touching 80 during the formal trading hours.

During the day, the rupee gained up to 79.72 when dollar purchases were reported. Some oil companies were seen buying them, while some day-traders were engaged in reportedly selling the INR.

“The rupee is heading to the psychological mark but the movement in the USDINR pair in the last couple of trading sessions has been giving a sense of strong central bank presence,” said Kunal Sodhani, AVP at Shinhan Bank. “The currency market may now be fully aware of the phenomenon as any drastic drop in the rupee’s value may trigger stop losses. In between, daily currency swings offer enough opportunities for day traders.”

The dollar index, which measures the unit against other major currencies, has weakened more than half a per cent since last Friday. Despite this, the rupee was the worst performing Asian currency on Monday. This year, the rupee has lost more than 7%, ranking seven among Asian currencies.

The Euro, which carries the largest weightage in the index, rebounded after attaining parity with the greenback for the first time in 21 years.

Foreign portfolio investors sold a net of over $31 billion in local securities this year, show data from NSDL, a depository. However, they invested a net of $40.5 billion in the calendar years 2019-2021.

“As capital flows return, depreciation pressure on the rupee that is being experienced now will ease and this, in turn, will curb imported inflation,” the RBI said in the latest monthly bulletin.

Speculation is an integral part of financial assets, dealers said, referring to trades on the unit.

“If anyone is rightly speculating on the RBI’s intervention strategy and making money, there is nothing wrong,” said a currency dealer in Mumbai.



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