Rupee forwards down on importer dollar demand

Reuters:  One-week rupee forwards on Tuesday ended weaker on importer dollar demand amid low liquidity for the U.S. currency a day after Moody’s revised down its outlook on the island country’s sovereign rating, dealers said. 

The local currency was also under pressure due to lack of exporter sales, while moral suasion by the central bank prevented spot trade, they added.

Moody’s Investors Service on Monday affirmed the government’s foreign currency issuer and senior unsecured sovereign ratings at B1 and changed the outlook to negative from stable, citing further weakening in some fiscal metrics in an environment of subdued GDP growth, which could lead to renewed balance of payments pressure.  

One-week dollar/rupee forwards, which have been acting as a proxy for the spot rupee in the absence of trade in three-day forwards, ended at 147.30/70 per dollar on Tuesday, weaker than Monday’s close of 146.75/147.10.

“The Rupee is weaker on low liquidity and people are not selling dollars with rising uncertainty,” said a currency dealer, asking not to be named.

“Moody’s revision of outlook will put more pressure on the currency and the interest rates.”

Dealers said the market was perplexed by the central bank’s intervention in both spot rupee and forwards.

Central Bank officials were not available for comment.

The central bank reduced the spot rupee’s peg to 144.50 per dollar on Thursday, from 144.75 in the previous session. The spot rupee was not actively traded for a sixth straight session on Tuesday, dealers said. 

The spot closed at 144.85/95 per dollar on 13 June.

The spot rupee was pegged down from 145.75 levels in early June after the local currency rose following increased dollar conversions by exporters and overseas funds.

For a fourth straight day, there was no active trading in three-day dollar/rupee forwards, known as spot next, but dealers said a state bank sold dollars in spot next to select trades at 145.25 per dollar. The forwards closed at 144.85/90 per dollar last Wednesday.

Spot next, which has acted as proxy for the spot currency since January, indicates the exchange rate for the day following conventional spot settlement.

For Tuesday’s trade, the spot next settlement takes place three days ahead.

Foreign investors net bought Rs. 6.67 billion ($46.06 million) worth of government bonds in the week ended 15 June, Central Bank data showed.

Lack of large inflows from exporters and borrowings were weighing on the currency, dealers said.