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| Though concerns over RIB redemptions starting from October 1 have hit sentiment, the fundamentals have not changed much.
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| A couple of holidays this week will result in players squaring up positions to remain cash-dollar rich. This strategy is expected to help them stay liquid to meet any eventualities.
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| The global currency scene is heartening as the dollar is poised to weaken against all major currencies this week. This is because of an apparent correction in dollar which had weakened substantially last week.
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| The euro strengthened last week against the dollar to 1.15 (1.1274 in the previous week). The Hong Kong dollar gained a lot following the political and trade pressure on China to put a range for the movement of yuan, if not make the currency completely floating.
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| The Hong Kong dollar, which is treated as a proxy to the yuan, had tested the 7.7990-7.7641 range last week. Dollar inflows are expected to bolster the market this week with players betting heavily on RIB proceeds coming back to the system.
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| The market was volatile last week as most of the players rushed for funding their short positions. In fact, they preferred to stay long fearing a dollar shortage after the redemption of RIBs.
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| Also, month-end dollar demand from corporates weakened the rupee. It is learnt that banks forced cancellations to realise the dollars booked by exporters who, in turn will get the equivalent money in rupees.
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| Apprehending a cash-dollar shortage on September 29, forex market players funded the entire short positions on Thursday.
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| With heavy dollar demand booked for spot delivery on September 29, the spot rupee weakened at the later part of Thursday to 45.87/88 as against a close of 45.7850/7050 on Wednesday.
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| Forward premiums
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| Forward premiums are likely to remain range-bound this week. The premiums may slightly improve by the end of the week.
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| This is because players who had done buy-sell swaps to remain cash rich till RIB redemptions may unwind positions and book forward dollars.
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| The intervention of the Reserve Bank of India (RBI) is also expected to weaken forward premiums. Near-term premiums were dealt at a premium last week.
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| The RBI is expected to buy inflows from the RIB proceeds to prevent an appreciation of the rupee. These factors are likely to keep the forward markets active during the week.
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| A few market players are of the view that a shortage of dollars to meet RIB inflows may force players to remain cash dollar rich. This trend is expected to continue for some time, they said.
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| Some believe that State Bank of India deposit schemes will bring inflows and forward premiums will attain normalcy.
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| However, if cash dollar demand continues, the RBI will intervene to prevent a discount to the premiums by buying forward dollars.
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| The six-month and one-year forward premiums closed lower at 0.52 per cent and 0.85 per cent, respectively, on Thursday as against 0.99 per cent and 1.07 per cent, respectively, on Wednesday. |
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