Indian rupee weakens amid dollar demand

The Indian rupee weakened on Wednesday, pressured by increased demand for the US dollar from public sector banks. This demand was primarily driven by the monthly expiry of currency futures contracts and month-end payments by importers.

The rupee was trading at 84.4425 against the US dollar, down 0.1 per cent from its previous close. The broader weakness in Asian currencies, particularly the Indonesian rupiah, which declined by 0.4 per cent, also weighed on the rupee.

Public sector banks were actively bidding for dollars, likely due to the expiry of the November month-end futures contract.

Traders often engage in spot-future arbitrage trades to capitalise on small price differentials between the two rates, especially when the Reserve Bank of India (RBI) intervenes in the futures market.

The daily fix rate, which is used for settling cash-settled rupee derivatives, was also quoted at a slight premium, indicating increased demand for dollars at this reference rate.

Dollar demand related to the futures expiry is expected to persist until the afternoon. Additionally, the rise in the dollar-rupee overnight swap rate suggests potential dollar inflows. These inflows may be linked to Indian sovereign bonds, which are expected to see a higher weightage in the JP Morgan emerging market bond index this month.

The US dollar index remained relatively unchanged at 106.8, as Federal Reserve meeting minutes revealed a division among policymakers regarding the future path of interest rate cuts.

Attribution: Reuters

Subediting: Y.Yasser