Rupee Crashes 63 Paise to 90.84 as NDF Maturities Hurt

Mumbai:The Indian rupee on Friday slipped 63 paise against the dollar to 90.86, pressured by nearly $3 billion maturing non-deliverable forward (NDF) positions. This was the rupee's biggest one-day fall in nearly two months. However, dollar sales from state-run banks on behalf of the Reserve Bank of India helped limit the currency's fall.

Traders said that the RBI had kept the rupee within the 90.30 level for almost a month but now with this level crossed, the rupee looks headed towards 91 and could even beat the all-time high of 91.08 as there are a number of NDF expiries in the coming days.

While the central bank usually intervenes in the spot over-the-counter (OTC) market to curb the rupee's volatility, more recently, it has changed its strategy and has been actively intervening in the NDF market to curb volatility and speculation. Taking positions in the NDF market has the benefit of not spending foreign exchange from the reserves. On the contrary, in the spot market, the central bank has to spend dollars to reduce volatility, leading to a reduction in forex reserves.

At the interbank foreign exchange market, the rupee opened at 90.37, touched an intraday low of 90.88, and a high of 90.36. It finally closed at 90.8650 per dollar, down 63 paise from Wednesday's close of 90.29. Friday's close was the rupee's worst drop since mid-November last year, inching closer to its all-time low of 91.14 hit in December. The currency was down about 70 paise week on week. The domestic foreign exchange market was closed on Thursday due to the Mumbai Municipal Corporation elections.

Says Anil Kumar Bhansali, head of treasury at Finrex Trading Advisors,

"The rupee is expected between 90.50 to 91.20 on Monday. As RBI bought dollars, the market would have got themselves short and more buying is expected on Monday and Tuesday while RBI would have the ammunition to keep selling at higher levels. Foreign portfolio investors have continued to sell in Indian equities leading to capital outflows which have been increasing as days pass. The India-US trade deal, despite being very close to being done since June 25, has not been finalized, keeping FPIs in a sell mode in debt and recently equities too. The deferment of Indian bonds into the Bloomberg Index to June has not been helpful as good inflows could have come through that route."

The rupee also faced pressure after data released on Thursday showed that India's merchandise trade deficit for December stood at $25.04 billion. The data also pointed to resilience in exports to the U.S. despite steep tariffs. The rupee had recorded its lowest closing level at 90.93 on December 16 when it had also touched an intraday historic low of 91.14.

Meanwhile, the dollar index, which measures the greenback's strength against a basket of six currencies, was trading 0.06 percent lower at 99.26. Brent crude, the global oil benchmark, was trading 1.14 percent higher at $64.49 per barrel in futures trade.