RBI slows down on dollar buying as Re drifts higher

Mumbai: After the outflows on last Thursday, it was time for inflows as RBI did not buy the US dollars as rupee rose to 83.85 before closing at 83.8875/USD. With most Asian currencies up Indian rupee also gained as RBI remained out of the market. The Indian rupee is expected to move in a range of 83.75 to 84.00 on Tuesday as Monday is a holiday in Indian Markets.

Talking to Bizz Buzz, Anil Kumar Bhansali, head (treasury) and Executive Director, Finrex Treasury Advisors, says: “We also enter into the Fed meeting starting on 17th when we resume trade on Tuesday. The decision will, however, come on 18th night and will affect Indian markets on 19th morning. The FEX reserves figures will be released at 5pm when we get to know how much RBI bought/sold during the week ended September 6.”

While the current market movements appear Fed centric and focused, the underlying sentiments point to US$ weakening, the easing of interest rates are notwithstanding. Gold prices are up in tandem with the perceived reversal of US$ fortunes. As reiterated, and frequently highlighted in the media, ballooning US debt is giving global markets the jitters on ‘what if’ scenarios if the country defaults or the continuing stalemate of fiscal cliffs remain entrenched for longer, which appears extremely likely. The upcoming elections there are also adding some serious variables and volatility to the mix, giving money managers the world over many sleepless nights.

MV Hariharan, ex treasury head, SBI, says: “In this situation, INR will be gaining traction and momentum towards 83.70 or thereabouts. RBI staying on the sidelines is just savvy investment management as well as having a leash on the Indian rupee.”

With compelling arguments for both sides, either towards 83/$ or 84, the currency will be shepherded in a narrow band of 25 paise with weakening bias. Outlook for the medium term is volatile and uncertain as markets continue to navigate uncharted waters, he said.

Meanwhile, the Dollar fell on Friday to its lowest this year against the yen and gold hit a record high after a dramatic overnight shift in investor expectations for a super-sized Federal Reserve interest rate cut next week. Stocks, treasury prices and commodities all rallied after traders raised the chances of a half-point cut from the Fed next week to 41 per cent, from closer to 14 per cent a day ago.

The Dollar dropped as much as 0.97 per cent to 140.57/Yen, its weakest since December 28. It was last down 0.77 per cent at 140.68. Yen made a high of 140.31 before retreating. Dollar index fell to 100.98.