India’s rupee snapped a two-day loss after U.S. lawmakers raised their nation’s debt ceiling, averting a default that could have damped demand for emerging-market assets.
Congress voted to halt a 16-day government shutdown, ending the fiscal impasse. Lawmakers didn’t resolve any of their long-term divides on fiscal policy and will need to return to the same issues over the next four months. The rupee will swing between gains and losses today as bunched inflows due to a market holiday yesterday are countered by dollar purchases by importers, according to Andhra Bank.
“The U.S. has just postponed its debt worries, not resolved them,” said Vikas Babu, a trader at state-run Andhra Bank (ANDB) in Mumbai. “There will be two-way movement in the rupee today and in the longer term rupee weakness will persist.”
The rupee gained 0.4 percent from Oct. 15 to 61.6275 per dollar as of 9:49 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell eight basis points, or 0.08 percentage point, to 14.30 percent.
Congress acted the day before U.S. borrowing authority was scheduled to lapse as lawmakers engaged in their fourth round of fiscal brinkmanship in less than three years. The agreement negotiated by Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell will fund the government at Republican-backed spending levels through Jan. 15, 2014, and suspend the debt limit through Feb. 7, setting up another round of confrontations then.
Three-month onshore rupee forwards rose 0.2 percent from yesterday to 63.02 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts advanced 0.2 percent to 63.08. 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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