Fresh shock in forex market as rupee breaks 132 barrier to hit a month low

The rupee yesterday dipped to a one-month low by breaking the Rs. 132 psychological barrier by the end of the week, to Rs 132.80 on the back of considerable importer demand, according to Wealth Trust Securities.

It said contracts for value on Tuesday (spot) opened trading at levels of Rs. 132.15 and lost ground by around 65 cents in early trading.

“However selling pressure at these levels coupled with dollar inflows to the Treasury bill market saw the rupee gain most of its lost ground once again to close the week at levels of Rs. 132.30/132.35. Furthermore it was interesting to note the increase in forward dollar premiums as well over the week, signalling renewed pressure on the rupee,” Wealth Trust said.

Commenting on the money market liquidity, the debt market specialist said market surplus liquidity hit a three week low of Rs. 5.3 billion at the end of the week.

“This is the first instance liquidity has dropped to this level since 25 July 2012, where it jumped to Rs. 58 billion overnight due to the part conversion of the US$ 1 b sovereign dollar bond proceeds,” Wealth Trust said.

It also said un-sterilised dollar sales in to the banking system from the Central Bank coupled with mopping up of liquidity through short-term Treasury bill auctions were seen as the reasons behind the decline according to market sources.

 In line with this overnight call money and repo rates edged up throughout the week to average 10.51% and 9.54% respectively for the week.

Following the outcome of this week’s Treasury bill auction and markets upward momentum, secondary market Treasury bond yields edged up during the week. The more liquid 19-month bond, four-year bond and five-year bond reflected the most amount of activity as its yields edged up around four basis points each in comparison to its previous weeks closing yields. However against this trend, foreign buying into the one-year Treasury bill saw its yields dip to levels of 13.15% to 13.20% on Friday.

“The expectations for weighted averages to increase further at next week’s bill auction coupled with the significant decline in market liquidity was attributed to the increase in yields,” Wealth Trust said.