Rupee falls, but holds important technical levels; premiums rise

Rupee falls, but holds important technical levels; premiums rise

The Indian rupee declined against the U.S. dollar on Thursday, as concerns over a European lender dented broader risk sentiment, but managed to remain on the stronger side of a past resistance level of 82.80.The rupee ended at 82.73 per dollar, against its previous close of 82.5950.Traders said foreign and state-run banks sold dollars around the 82.80-level.

Some even reckoned the Reserve Bank of India may have intervened to stem depreciation in the rupee, as the central bank has protected those levels in the past. Still, despite the currency’s failure to weaken past the 82.80-83 zone, traders added more long positions on USD/INR futures as they expected risk sentiment to remain fragile.”There are higher chances of 83 getting breached and the rupee weakening now,” said Jigar Trivedi, senior research analyst, currencies and commodities at Reliance Securities.

These market events have made investors reassess the size of the rate hikes from central banks in Europe and the U.S. at their upcoming meetings. ECB policymakers meet later in the day and earlier bets of a 50 basis point (bps) have been scaled back. Meanwhile, U.S. bond yields recovered, with 2-year yield trading at around 4.024% after falling to 3.9750% overnight. Rupee premiums rose, with the 1-year yield firming as much as 2.40% to a six-week peak.