Rupee depreciates against dollar as focus shifts on Fed minutes, premiums fall

At the interbank forex market, the local unit settled at 81.8450 against the US currency on Wednesday compared to the previous closing of 81.6650. The rupee traded between 81.75 to 81.8550 in the session. This would be the third session of subdued intraday performance in the rupee as investors await FOMC minutes.

Sriram Iyer, Senior Research Analyst at Reliance Securities said, “The Indian Rupee weakened marginally on Wednesday on cash dollar outflows and weaker Asian and EM peers.” He added that this was the third session of muted intraday moves as investors awaited further cues from the Fed meeting minutes which will likely provide more cues.

Meanwhile, the USD/INR premiums dropped with the 1-year implied yields closing at 2.10% on Monday — which is the lowest level in more than a decade. On Tuesday, the rupee premiums ended at 2.17%.

Amongst the Asian and EM peers, Iyer said, “the offshore Chinese Yuan weakened by 0.39% but the Singapore Dollar was the worst performer from the intraday perspective falling by 0.53%.”

Iyer added that “crude oil prices remained subdued and offered some support, NDF is trading at 81.82 against the dollar still slightly weak but the markets will be awaiting a busy economic calendar day this Wednesday evening, and investors will be cautious and will refrain themselves from taking large positions. India’s bond yields were largely unchanged with market participants avoiding large positions ahead of the minutes of the U.S. meeting.”

The benchmark 10-year bond yield finished at 7.291% versus its previous day’s closing of 7.285%.

In the overseas markets, the dollar index and the U.S. bond yields were flat this afternoon trade ahead of the release of closely watched minutes.

In terms of domestic equities, Sensex rose by 91.62 points or 0.15% to end at 61,510.58, while Nifty 50 jumped by 23.05 points or 0.13% to finish at 18,267.25. Smallcap stocks witnessed huge demand on Wednesday. Banking stocks outperformed, while significant gains were added from metal and oil & gas stocks.

Vinod Nair, Head of Research at Geojit Financial Services said, “Following the global trend, domestic indices continued to cautiously build gains as investors braced for the FOMC meeting minutes. The declining dollar index and falling bond yield provided short-term relief, while the FIIs’ unpredictability kept investors at bay. Although the Eurozone PMI showed that the economy was still contracting, the rate of contraction had slowed.”

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