Market expectations for a significant weakening of the Indian Rupee (INR) against the US Dollar (USD) have intensified, fueled by a dramatic spike in forward pricing and a perceived light-touch approach from the Reserve Bank of India (RBI).
Thank you for reading this post, don't forget to subscribe!The 1-month dollar/rupee Non-Deliverable Forward (NDF) points experienced a startling increase, soaring by nearly 50% in just three days to hit a seven-month peak of 23.25 paisa on Wednesday. This sharp move in the offshore market reflects a quick consensus among traders that the USD/INR exchange rate is set to move higher (favoring the dollar).
Speculators Gain Confidence
A Singapore-based banker noted that the price action is acting as a signal, leading speculators to aggressively trade the momentum. “The way the points have moved tells you speculators are simply trading what the price action is signalling — the upside momentum (on dollar/rupee) is picking up,” the banker stated.
Adding to the bullish sentiment for the dollar is the central bank’s intervention strategy. The RBI’s “relatively light-touch intervention” is being interpreted by the market as a reluctance to forcefully push the dollar/rupee rate lower, emboldening speculators to increase their bets on a continued Rupee decline.
Importers Rush to Hedge
The concerns over the Rupee’s future performance are not limited to the offshore market. On the domestic front, onshore far-forward points have also jumped significantly. This surge is directly attributed to a spike in importer hedging demand, as businesses that owe future dollar payments rush to lock in rates, anticipating a further slide in the Rupee’s value.
Reflecting the long-term bearish outlook, the implied 1-year dollar/rupee forward yields climbed by 12 basis points, reaching their highest level since January. This widespread and sustained increase in both near-term and long-term forward pricing underscores a strong market expectation for a sustained weakening of the Indian currency.
