Mumbai, Oct. 7 The rupee extended its gains for the fourth consecutive trading session, appreciating by 22 paise against the dollar on Wednesday.
The domestic currency opened at 46.84 and strengthened to touch an intra-day high of 46.49. It gave up some of its gains to close at 46.66 as against the previous close of 46.88. The rupee had last touched 46.65 levels in the first week of June this year.
There was a 15-20 paise arbitrage between the one-month non-deliverable forward and the spot market i.e. market players sold dollars in the domestic market and bought in the NDF market. Panic selling by exporters also strengthened the rupee, said a dealer with a private sector bank.
However, dollar demand from oil companies and importers exerted pressure on the currency unit. The Reserve Bank of India is also rumoured to have intervened to check the rupee’s gains, said another dealer.
Speaking to reporters on the sidelines of a banking seminar, the RBI Deputy Governor, Dr K.C. Chakrabarty, said that the central bank is not too concerned about the rupee’s appreciation. “As a monetary authority we are concerned about the volatility. This has to be managed,” he said.
In the long term, the RBI is happy with the rupee’s movement, he added.
Sustainable
According to Mr Hitendra Dave, Head Global Markets, HSBC India, the rupee’s rally looks like a sustainable one. It is catching up with a lot of its Asian peers. It is not just about the rupee’s gains, but more about the dollar weakness globally.
“If the gain continues we will need to watch reactions of exporters and the RBI. Our immediate target is 46,” he said.
Currency futures
The sharp appreciation in the rupee has led to more market participants looking to hedge their receivables on the currency futures platform.
According to data provided by MCX Stock exchange, the currency futures market logged the highest turnover of Rs 10,798 crore since the date of its inception a year ago. The exchange clocked a turnover of Rs 8,271 crore on October 6 and Rs 6,441 crore on October 5.
“If the rupee continues to appreciate, things will get difficult. As it is, we had to lower prices to be competitive in the international markets. Now with rupee also gaining, it will squeeze our margins,” said Mr Aman Chadha, Chairman, Engineering Export Promotion Council.
Hedging
Whether exporters will start hedging or not will depend on the rupee’s movement over a longer period of time rather than just one or two trading sessions. It is difficult to hedge when there is too much volatility as one doesn’t know which way the rupee will move, Mr Chadha said.
In the forward premia market, the 6-month premium closed higher at 3.19 per cent (3.15 per cent) and the one-year closed at 3.4 per cent (3.3 per cent).
Source : Business Line