Rupee’s weekly advance pales against peers; premiums fall more

The rupee dipped to 81.3175 per U.S. dollar from Thursday’s closing of 81.20. The local unit was unable to sustain its positive opening, weighed by a persistent demand for dollar from corporates, traders said.

For the week, the rupee was up 0.5%, helped by the U.S Federal Reserve Chair Jerome Powell’s comments that did not sound as hawkish as some had feared. The dollar index declined to its lowest level since July, while Treasury yields dropped.

The weak U.S. data and the moderation in the U.S. inflation contributed to the dollar’s decline.

Rupee’s performance this week was well short of other Asian currencies. The offshore Chinese yuan, the Korean won, the Malaysian ringgit and the Singapore dollar were up 1.5% to 2.5% this week.

The rupee’s underperformance is a reflection of how less volatile it is relative to other currencies, a trader at a foreign bank said. If dollar’s current downtrend reverses, rupee will fall less than rest of Asia.

Rupee forward premiums continued to drift lower with the 1-year yield falling to near 1.90%. Falling U.S. and India interest rate differentials alongside likely buy/sell swaps by the Reserve Bank of India in near-term forwards pushed premiums to levels last seen more than a decade back.

A few analysts now reckon that there is limited room for premiums to fall further.

Premiums are likely to be volatile next week, with the Reserve Bank of India policy decision due on Wednesday.