India’s rupee fell to a record after a U.S. jobs report showing companies hired more workers than economists forecast added to the case for the Federal Reserve to reduce monetary stimulus.
U.S. payrolls rose by 195,000 workers for a second month in June, the Labor Department reported July 5 in Washington, exceeding the 165,000 median estimate in a Bloomberg survey. The Dollar Index, which tracks the greenback against six major trading partners, rose to the highest level since July 2010. Global funds have pulled $7.6 billion from Indian bonds since holdings touched an all-time high on May 21. The currency pared losses on speculation the central bank intervened.
The U.S. jobs data “could lead to outflows from all emerging markets,” said Vikas Babu, a trader at state-owned Andhra Bank in Mumbai.
The rupee declined 0.6 percent to 60.6150 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It dropped as low as 61.2125, passing the previous record of 60.7650 on June 26. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 75 basis points, or 0.75 percentage point, to 13.56 percent, the highest closing level since June last year.
Fed Chairman Ben S. Bernanke signaled May 22 that the central bank’s asset-buying program could be tapered should the job market continue to improve. The unemployment rate held at 7.6 percent in June, near a four-year low.
The central bank probably sold dollars today to slow the rupee’s drop, two traders said, asking not to be identified as the information isn’t public.
Any dollar sales by the Reserve Bank of India will be aimed at reducing market volatility, rather than supporting the exchange rate, as the rupee’s slide is in line with losses in other currencies, according to Barclays Plc. The dollar climbed against eight of 11 Asian currencies tracked by Bloomberg.
“The RBI is definitely concerned about rupee weakness,” said Nick Verdi, a strategist at Barclays in Singapore. “It will look to combat this mostly through verbal intervention” and “moves to discourage speculation,” he said.
The yield premium on 10-year Indian sovereign bonds over similar-maturity U.S. Treasurys has slid 134 basis points from this year’s high of 622 on April 5.
The RBI, concerned about the fastest growth in currency derivatives trading in more than three years, is asking overseas funds to prove they aren’t speculating on the rupee.
Turnover in futures and options involving the currency climbed 47 percent to a daily average of 387.7 billion rupees ($6.4 billion) in June on the National Stock Exchange of India Ltd., the biggest jump since January 2010.
The RBI on June 26 asked overseas funds for proof that individual accounts were seeking to limit currency risk on securities by using derivatives. The central bank has also inquired about foreign lenders’ open positions involving the rupee. Global investors can only use rupee futures and options to protect their holdings of Indian shares and debt.
Three-month onshore rupee forwards fell 0.6 percent to 61.80 per dollar, according to data compiled by Bloomberg. Offshore non-deliverable contracts rose 0.4 percent to 61.94. 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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