The rupee weakens due to demand for corporate dollars but does not cross the 90 mark

The Indian rupee weakened for a third straight time on Monday as demand for corporate dollars through private banks put pressure on the currency, with bids at the central bank’s reference rate adding to resistance, traders said. The rupee closed at 89.9750 per US dollar, softer than Friday’s close of 89.85. ‌It opened at 89.88 and steadily slipped through the session.“Aside from demand for corporate dollars, there was hardly any activity from traders or speculators, which was evident as volumes remained shallow,” said a trader at a private bank.

Earlier in the day, bankers were willing to pay a premium of roughly 1.5 paisa to buy dollars at the RBI fix rate, indicating stable demand for dollars.

The rupee hovered around 90 during the session and is in danger of breaching the mark this week as declining year-end volumes are likely to magnify flow-driven moves, traders said.

“On the surface, the markets appeared calm, but beneath that calm, a bigger shift could be quietly taking shape as the year progresses,” said Amit Pabari, managing director at FX consultancy CR Forex. Asian cues were largely unsupportive for the rupee, with regional currencies mostly weaker and the dollar index rising to 98.05.

Meanwhile, forward premiums in dollar and rupee remained relatively calm after a very volatile week, with the implied one-year yield rising 2-3 basis points to around 2.80%. The rupee’s decline against the dollar has boosted UBS Asset Management’s appeal ahead of a much-awaited trade deal with the US.

“We like the currency and believe it is very cheap. The trade deal has not been announced yet, but we hope it will be announced soon, so at these levels the currency looks attractive,” said Shamaila Khan, head of fixed income emerging markets and Asia Pacific, UBS Asset Management.