Rupee dips to 82.9175 on heightened dollar demand

Rupee dips on Monday: The rupee concluded Monday's trading session on a lower note, influenced by heightened dollar demand from domestic oil companies and an uptick in US Treasury yields. Closing at 83.0550 against the US dollar, the rupee depreciated by 0.17 per cent compared to its previous close of 82.9175.

During Asia hours, the dollar index reached 104.26, marking its highest level in nearly two months. Asian currencies, including the Thai baht, Korean won, and Malaysian ringgit, experienced a collective decline of 0.7 per cent.

The 10-year US Treasury yield saw an increase to 4.09 per cent, rising by 17 basis points (bps) on Friday following robust US non-farm payrolls data.

The rupee faced pressure on Monday due to "continuous bids" from local oil companies, as noted by a foreign exchange trader at a private bank. Concurrently, rupee forward premiums witnessed a decrease, with the 1-year implied yield falling by 6 bps to 1.76 per cent, marking its lowest level in a month. This decline was attributed to the adjustment of US rate cut expectations.

Anindya Banerjee, the head of foreign exchange research at Kotak Securities, anticipates the rupee to remain range-bound in the short term, with weakness potentially limited near the 83.30 mark.

The recent non-farm payrolls data and comments from Fed Chair Powell led investors to reconsider expectations of aggressive rate cuts in the US Powell, in an interview with CBS’s 60 Minutes, stated that it is likely premature for Fed policymakers to be confident in predicting inflation's future trajectory for rate cuts in March. Investors have adjusted their outlook, pricing in approximately 120 bps of Fed cuts in 2024, down from just under 150 bps the previous week. 

(With Reuters inputs)