India’s rupee snapped a two-day gain on concern U.S. policy makers may slow debt purchases that boosted the supply of dollars and contributed to inflows into emerging markets.
Minutes from the Federal Reserve’s last meeting released yesterday show several officials said the monetary authority should vary the pace of buying bonds. The Dollar Index, which tracks the greenback against six major trading partners, rose to a three-month high. The rupee’s losses will be limited as foreign investors will still buy the nation’s debt, according to Development Credit Bank Ltd.
“There is caution after the Fed minutes as inflows may slow,” said Naveen Raghuvanshi, a trader at Development Credit Bank in Mumbai. “The inflows into rupee debt will keep the currency supported for a few days.”
The rupee declined 0.7 percent to 54.4225 per dollar as of 9:44 a.m. in Mumbai, according to data compiled by Bloomberg. The currency’s drop may be capped at 54.50, Raghuvanshi said. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 10 basis points, or 0.1 percentage point, to 9.20 percent.
The Securities & Exchange Board of India sold 666.7 billion rupees ($12.2 billion) of debt-purchase quotas to foreign investors at a monthly auction yesterday. India raised the cap on overseas purchases of the notes by $10 billion to $75 billion last month.
Three-month onshore rupee forwards traded at 55.51 per dollar, compared with 55.12 yesterday, according to data compiled by Bloomberg. Offshore non-deliverable contracts were at 55.35 versus 55.02. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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