INR: Rupee Slips to Fresh Record Low, Prompting RBI Intervention
The rupee has slipped to a fresh low versus the dollar, with ongoing weakness evidence of the RBI’s more hands-off approach to FX management under new Governor Sanjay Malhotra. Similarly, 1-month realised INR vols have neared on 4% - its highest level since April 2023.
- Nevertheless, the RBI still intervened overnight to prevent further weakness. According to traders who spoke to Reuters, state-run banks were spotted offering dollars near 87.24-87.26 levels, most likely on behalf of the central bank.
- Expectations that the RBI will cut rates at its first policy meeting of the year on Friday have largely underpinned rupee weakness this week, alongside familiar headwinds such as dollar demand from local importers, despite broader dollar weakness during the APAC session.
- The central bank’s recent $18bln of liquidity injection measures have been seen as a precursor for a 25bp cut to rates – which is the outcome expected by 33 of the 39 analysts surveyed by Bloomberg (1 analyst expects a 50bp cut, 5 see rates unchanged). Our full preview for the decision will be out later in the week.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
US TSY OPTIONS: Large outright call buyer
TYG5 111c, bought for '04 in 10k.
EGBS: J.P.Morgan Recommend Long 10-Year SPGB Vs. Bunds
J.P.Morgan recommend “investors shift overweight intra-EMU exposure after the recent widening move and enter long 10-Year Spain vs. Germany.”
- They note that “intra-EMU spreads have been under pressure since the December ECB meeting.”
- They believe that “the widening was likely due to a combination of a relatively hawkish delivery from the ECB, heightened political uncertainty in France and liquidations of overweight tightener positioning. Also, the typical weak market liquidity around year-end likely exaggerated these moves.”
- Furthermore, they “remain of the view that heavy January supply will be well digested by the market, especially given attractive valuations after the recent sell-off/spread widening.”
SCHATZ TECHS: (H5) Fresh Cycle Low
- RES 4: 107.365 High Dec 12
- RES 3: 107.170 High Dec 20
- RES 2: 107.065 20-day EMA
- RES 1: 106.965 High Jan 3
- PRICE: 106.715 @ 10:27 GMT Jan 6
- SUP 1: 106.695 Intraday low
- SUP 2: 106.680 Low Nov 20 (cont)
- SUP 3: 106.645 Low Nov 18 (cont)
- SUP 4: 106.625 2.00 proj of the Dec 2 - 6 - 12 price swing
The current bear cycle in Schatz futures remains intact and recent weakness, including today’s fresh cycle low, reinforces this theme. The Jan 3 sell-off confirmed a resumption of the bear leg and sights are on 106.695, the Nov 20 ‘24 low (cont). Initial firm resistance is seen at 107.065, the 20-day EMA. A clear break of it would highlight a potential reversal. For now, short-term gains would be considered corrective.
