Dollar crunch pulls rupee down to 44.01

MARKETS REPORT

Outlook: The rupee is expected to open between 43.96 and 43.98 against the dollar on Friday.

Frantic dollar buying by banks, triggered off by an acute dollar shortage in the foreign exchange market, pulled the rupee down to a low of 44.01 against the dollar during the day.

Forward dollars across maturities were sold at a discount, while cash dollars (which will be sold back tomorrow) were available at a premium of 7 per cent.

According to dealers, demand from banks to cover short positions, coupled with the Reserve Bank of India's intervention and a huge demand for import payment from a single corporate led to the rupee losing 20 paise in one trading session.

It opened today at 43.80/81 and closed at 43.9750/9850 on the back of dollar sales by exporters after touching a low of 44.01. With today's movement, the rupee has lost 71 paise since it reached a high of 43.30 on April 1.

Demand for cash dollars led banks into swaps in the cash-spot market and subsequently, with each depreciation of the rupee, exporters booked receivables. Both these forced forwards into discounts across maturities.

While cash ( today) dollars could be bought for being sold in the spot ( day after tomorrow) market at a premium of three per cent, the pressure is high if these were sold tomorrow. Thus cash was trading at a discount of 7 per cent.

For other maturities, dollars were even cheaper, with the one month, six month and one year trading at -2.5 per cent, -0.6 per cent and -0.3 per cent, respectively. Dealers said the RBI intervened in the spot market but stayed away from the forward market.

With the spot rupee coming under renewed pressure from a single huge import payment, most of the banks got caught with uncovered short positions. This cumulative demand pushed down the rupee.

Money market

Sentiment: Bullish

• Government securities prices went up due to cancellation of a scheduled auction.
• Prices of long-term securities increased by 20-25 paise and those of medium- and short-term gilts did not witness much movement.
• The yield on the ten-year benchmark paper closed at 5.075 per cent.
• Call money rates declined to 3 per cent.
• Subscriptions at the repo window stood at 15,000 crore.