The rupiah recovered its losses early on Friday, after closing at an all-time low of 78.32 against the dollar in the previous two sessions.
This decline was mainly due to a fall in commodity prices which provided relief to inflation fears and the resulting aggressive policy tightening.
On the interbank exchange, the rupee opened at 78.20 against the dollar. At the start of trading, the currency ranged from 78.19 to a low of 78.24.
The rupee had closed at its historic low of 78.32 against the dollar on Thursday and Wednesday.
“The Rupee will trade in a range of 78-78.40 as Foreign Portfolio Investors (REITs) continue to buy US Dollars, along with Oil Companies, while the Reserve Bank of India continues to sell and to protect the rupiah,” said Treasury chief Anil Kumar Bhansali. at Finrex Treasury Advisors, PTI said.
With a wide range of industrial and construction uses, copper is a leading indicator of economic activity. Copper fell 3% in Shanghai and was down more than 7% for the week, marking its biggest weekly decline since the pandemic-induced meltdown in financial markets in March 2020.
Benchmark grain prices fell, with Chicago wheat falling nearly 9% for the week and to its lowest level since March at $9.42 a bushel. Oil prices also fell overnight and Brent futures are down 2% on the week to below $110 a barrel.
“While market concerns about a sharp downturn are driving recent declines in commodity prices, the drop in commodity prices gives the impression that it could be just what the doctor ordered for l ‘global economy,’ NatWest market strategist Brian Daingerfield told Reuters.
“A lot of our hard landing fears are tied to commodity price concerns.”
But the rupee’s relief from life’s lows may be short-lived.
A Reuters report on Thursday showed a shortage of cash dollars and intervention in the Reserve Bank of India’s futures market pushed onshore one-year futures premia to their lowest levels since more than a decade could pressure the rupiah to new lows.
“The situation is really bad. There is a shortage of dollars which is made worse by RBI taking delivery of expiring futures contracts,” said the head of forex trading at a private bank.
Carry trades are likely less attractive to foreign investors due to falling futures premiums, and dealers have warned that the unwinding of these carry trades will further devalue the spot rupee and push it below 79 levels. -80.
If the situation worsens, the trader warned that premiums could drop even further and a sell/buy trading window may be necessary.
“The RBI is doing a lot of buy/sell swaps to avoid showing a decline in spot FX reserves I guess. United,” said Vivek Kumar, an economist at QuantEco Research. .
Until last year, when the RBI stepped in to halt the unsustainable appreciation of the rupee, it would buy dollars ahead of time to stop an influx of rupee liquidity into the spot market.