India Rupee Snaps Five-Day Gain as Factory Output Seen Falling

India’s rupee snapped its longest winning streak in almost a year before a report that economists predict will show factory output contracted for a third month. Government bonds declined.

Industrial production fell 0.9 percent in July, according to the median of 28 estimates in a Bloomberg survey before data due at 5:30 p.m. in New Delhi today. The rupee surged 6.9 percent in the five days through yesterday as a U.S. jobs report on Sept. 6 fell short of economists’ estimates, spurring speculation the Federal Reserve will hold off from cutting stimulus. Raghuram Rajan, who took charge as Reserve Bank of India governor on Sept. 4, announced steps that day to boost the supply of dollars.

“There are expectations built in for Rajan to deliver, but I am not buying the rupee versus the dollar as India’s problems are much more than monetary,” said Sean Yokota, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore. “We had some weak U.S. payrolls data last week and the rupee has benefited from that. The reasons were not India-specific.”

The rupee fell 0.3 percent to 63.5350 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The five-day surge was the biggest rally since Bloomberg began compiling data for the currency in 1973, and the longest winning streak since October 2012.

One-month implied volatility in the rupee, a measure of expected moves in the exchange rate used to price options, fell five basis points, or 0.05 percentage point, to 17.58 percent.

Rupee Reversal

“I am not fully comfortable with the rupee move, which has been truly spectacular,” Benoit Anne, head of emerging-market strategy at Societe Generale SA in London, wrote in an e-mail today, referring to the recent surge. “I am concerned that Mr. Rajan’s honeymoon may be much shorter than anticipated in the face of continuously poor macro data,” adding that the rupee could drop to 68 per dollar.

India’s currency may weaken when the Fed meets Sept. 17-18, said SEB’s Yokota. Policy makers will reduce Treasury purchases to $35 billion from $45 billion a month, while maintaining mortgage-debt buying at $40 billion, according to the median of 34 responses in a Bloomberg News survey of economists on Sept. 6.

The yield on India’s 7.16 percent bond due May 2023 rose four basis points to 8.50 percent, snapping a two-day drop, according to the central bank’s trading system. A weaker rupee may stoke inflation as the nation imports about 80 percent of its oil.

Three-month onshore rupee forwards fell 0.7 percent to 65.41 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts fell 0.8 percent to 65.81. 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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