Growing expectations of a rate cut by the US Federal Reserve in December helped boost global equities, with India’s stock indexes, the BSE Sensex and Nifty 50, posting gains of more than 1% – the most in a single day since June.However, the positive signals did little to help the rupee, with traders pointing to outflows, while state-owned banks’ dollar sales limited the rupee’s decline, traders said.
“The market clearly wants to go long and any dip (on USD/INR) will be bought,” FX consultancy IFA Global said in a note.
The dollar index settled at a one-week low, while the offshore Chinese yuan hit a 13-month high after the country’s central bank sent the market higher along with a weaker U.S. currency. Against the rupee, the yuan has been hovering near an all-time high of 12.60 last week. Lingering concerns about steep U.S. trade tariffs and a negative skew in trade and portfolio flows have helped the local currency fall about 4% against the U.S. dollar and more than 7% against the yuan this year.
Meanwhile, far forward premiums in the dollar and rupee edged higher, with the 1-year implied rate slightly higher at 2.21% and hovering around a monthly peak.
With certainty growing about a Fed rate cut next month, traders believe the trajectory for future premiums will depend more on the Reserve Bank of India’s policy decision, which will take place on December 5.
RBI Governor Sanjay Malhotra said in an interview on Monday that there is scope to further cut the policy rate, but the timing would depend on the rate-setting panel.
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