The Indian rupee weakens against US Dollar
The Indian rupee weakens last days due to defence-related demand for dollars. The rupee settled 25 paisa lower at 74.93 against the US dollar on Tuesday. This strengthen US currency and volatile trade in the domestic equity market. Foreign fund inflows and easing crude oil prices supported the rupee. But factors like strong dollar and rising COVID-19 cases dragged down rupee.
It is said that nationalised banks were quite active in buying dollars the past few days and they are buying spot dollars on behalf of the RBI and selling the dollars in the forwards markets. The stock indices also shows a rise. This helps the central bank to accumulate dollars from the market. The central bank is parking these accumulated dollars in the forwards markets, which is improving liquidity for now at the cost of demand of dollar for a future date.
The rupee opened weak at 74.74 at the interbank forex market, then lost further ground to settle at 74.93 against the US dollar, 25 paise lower than its previous close. In a highly volatile trading session, the rupee witnessed an intra-day high of 74.68 and a low of 74.97 against the US dollar.
The 12 months forward premia have surged about 10 paise in the two trading days this week. Such jump in premium happens when the central bank buys dollars in the spot market and sells in the forwards markets.The 12-month forward premium is roughly at around 3.96 per cent. Admittedly, the premium is still lower than the normal 4-4.5 per cent level that prevails in the market. Sometimes, the premium can jump to six per cent also if there is shortage of dollars anticipated for the futures.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.26 percent to 96.97.
