India Rupee Drops to 8-Week Low as U.S. Data Spurs Taper Bets

India’s rupee dropped to an eight-week low as U.S. jobs data bolstered the case for the Federal Reserve to trim stimulus. Government bonds advanced.

U.S. payrolls rose 204,000 in October, almost twice as much as economists surveyed by Bloomberg predicted, official data showed Nov. 8. India’s currency was also pressured after the central bank cut direct dollar supplies to oil refiners and before a report tomorrow forecast to show consumer-price inflation accelerated last month.

“Indian assets are clearly under pressure with the taper theme reemerging,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore. “The spot rupee might weaken further as the Reserve Bank of India scales back some of its support measures.”

The rupee fell 1.2 percent to 63.2375 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 63.4450 earlier, the weakest level since Sept. 18. The currency may drop beyond 64 in the coming days, Cavenagh predicts.

The yield on the 7.16 percent bonds due May 2023 fell four basis points to 8.95 percent, according to prices from the central bank’s trading system. The rate had earlier risen as high as 9.14 percent, the highest for a 10-year bond since Aug. 19.

Inflation Concerns

Consumer prices rose 9.9 percent in October from a year earlier, compared with 9.84 percent in September, according to the median of 32 estimates in a Bloomberg survey of economists. Industrial production probably advanced 3.5 percent in September, after a 0.6 percent gain the previous month, a separate Bloomberg survey shows.

Refiners are now buying about 30 percent to 40 percent of their dollar requirements from the market after the RBI cut direct supplies, Economic Affairs Secretary Arvind Mayaram told CNBC TV-18 on Nov. 7. The central bank had started a swap facility to provide the greenback to the three largest state-run refiners after the rupee plunged to a record-low 68.845 per dollar on Aug. 28.

Fed policy makers will pare the monthly pace of bond-buying to $70 billion at their March 18-19 meeting, according to the median estimate of 32 economists in a Bloomberg News survey Nov. 8. An Oct. 17-18 survey of 40 economists also forecast a reduction to $70 billion in March.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, fell 38 basis points, or 0.38 percentage point, to 13.12 percent.

Three-month onshore rupee forwards dropped 1.2 percent to 64.85 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts declined 0.3 percent to 65.19. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

Investors should consider buying the rupee when the one-month NDF drops to around 64.5 per dollar, Westpac’s Cavenagh said, adding that India’s economy is improving after growth slowed to a decade low in the year ended March 31.

India’s exports rose for a fourth month in October and imports fell, official data showed today.

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