Rupee Forward Premium Falls To Over Three-Week Low
The premium on one-year exact period dollar/rupee forward contract declined to 2.28%, the lowest level since Sept 12.
(Photo: Vijay Sartape/NDTV Profit)
Premium on a one-year dollar/rupee forward contract fell to an over three-week low on Monday, tracking the rise in US Treasury yields after the release of strong US non-farm payroll data. The data prompted investors to pull back bets on aggressive easing by the Federal Reserve.
The premium on the one-year exact period dollar/rupee forward contract ended Monday at 2.28%, the lowest level since Sept. 12. Intraday, premium fell to 2.27%.
The yield on the benchmark 10-year US Treasury note rose to 4.33%, the highest level since Aug. 9, according to data on the US Department of Treasury. It was trading 4.01% higher at 4:04 p.m.
The yield rose after US non-farm payroll increased 254,000 in September, against analysts' expectation of a 150,000 rise, Bloomberg reported.
The rise in new jobs in the world's largest economy in September is the highest in six months, according to Bloomberg. This raised concerns about the quantum of rate cuts by the Fed going forward.
"The growth in US payrolls quashed all talks and fears of US economic slowdown and market was opinion that Fed may not cuts rates very sharply to support the economy, thus boosting the dollar and US bond yields," said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.
Bhansali anticipated that the premium range on the one-year dollar/rupee forward contract would move between 2% and 3% in the near term.
In the September policy meeting, Fed Chairman Powell said that supporting the labour market was one of the reasons to go for a 50-basis-point rate cut.
The Fed Fund Future traders are expecting an 83.8% possibility that the target Federal fund rate may fall to 4.25–4.50% by the end of 2024, according to the CME FedWatch tool.
In the domestic spot market, the rupee settled flat at Rs 83.98 against the dollar after opening at Rs 83.96. It had closed at Rs 83.97 on Friday.
The Indian unit closed flat despite a rise in the dollar index and US Treasury yields, as the Reserve Bank of India likely protected the unit to arrest its decline beyond 84.00 a dollar, according to forex trades.
Moreover, the central bank likely has directed public-sector and private sector banks to refrain from placing big bets against the spot rupee to extend its support for the domestic currency, Informist reported, citing dealers.
