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Rupee declines due to corporate dollar demand and falling premiums

The rupee's final price against the dollar was 81.8450, down from Tuesday's finish of 81.6650.

BENGALURU (Reuters) – On Wednesday, traders reported that a major corporation was withdrawing funds in dollars, which led to a small decrease in the Indian rupee’s value against the dollar.

The rupee’s final price against the dollar was 81.8450, down from Tuesday’s finish of 81.6650. Throughout the session, the local unit fluctuated between a small 81.75 to 81.8550 range.

A dealer noted that a major corporation’s cash dollar outflows kept the USD/INR pair firmly bid. A business would need to buy dollars in spot and execute a buy/sell cash over spot swap in order to make a cash dollar outflow.

The rupee had experienced three sessions of restrained intraday movements. In contrast to the volatility of last week, the rupee has so far traded within a range of about 30 paisas this week. The USD/INR implied volatility for one month has decreased to about 5.5%.

The 1-year expected yield dropped to 2.10%, close to its lowest level in more than a decade, as rupee premiums decreased. So far this month, the 1-year implied has decreased by around 30 basis points.

The U.S. Federal Reserve’s November meeting minutes, which will be released later in the day, will be the main topic of discussion. After the Fed indicated a slower pace of rate hikes at that meeting, investors are debating the likely course for U.S. rates. More hints will probably be given in the minutes.

Prior to the minutes, the dollar index hardly changed at just over 107. Both U.S. equities futures and near-maturity Treasury rates were slightly higher.

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