Interbank traders turn focus to dollar-rupee forwards as spot treads water
The rupee has hovered in the 85.30 to 86.02 range against the U.S. dollar over June so far with its 1-month realised volatility declining to 4.5%, the lowest in about six weeks.
Dollar-rupee forward premiums, meanwhile, have witnessed sharper moves, sparked by the Reserve Bank of India's outsized rate cut last week and changes in expectations of U.S. rate cuts.
The 1-year dollar-rupee implied yield fell to its lowest in nearly one year earlier this month while the 1-month forward premium has fallen about 4 paisa to its lowest level since November.
The fall in dollar-rupee forward premiums leaves the rupee vulnerable to further depreciation by reducing the currency's "carry trade" appeal and diminishing the incentive for exporters to hedge receivables, analysts said.
Speculative activity has picked up on forward premiums as markets are "largely playing the range (on spot USD/INR)," a trader at a large private bank said.
To be sure, large moves in global foreign exchange markets could spur the dollar/rupee to break out of its prevailing range, said Apurva Swarup, vice president at Shinhan Bank India.
If the dollar index breaks below the 98 level, that could unlock room for rupee appreciation from prevailing levels, Swarup said.
On Thursday, the rupee was nearly flat against the U.S. dollar at 85.5125 as of 11:00 a.m. IST.
Asian currencies were mostly stronger with the offshore Chinese yuan rising 0.2% as the latest trade truce between Washington and Beijing raised hopes that the world's two largest economies could avoid escalations in their tariff row.
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