indian-rupee-s-rise-and-5-billion-swap-maturity-put-spotlight-on-rbi

Traders are closely watching the Reserve Bank of India (RBI) as the Indian rupee is expected to gain ground at the start of trading on Monday, coupled with the maturity of a $5 billion swap, indicating potential liquidity adjustments.

According to non-deliverable forwards, the rupee is anticipated to open at 82.74-82.75 against the U.S. dollar, compared to its previous close of 82.7850.

The $5 billion dollar/rupee sell/buy swap initiated by the RBI matures on Monday. Earlier reports from Reuters suggest that the central bank will honor the swap, effectively withdrawing $5 billion from the system while simultaneously injecting equivalent rupee liquidity.

"Two things to watch for today," remarked an FX trader at a bank. "First off, whether RBI will again intervene and buy (in spot) and then whether it will supply dollars (to counter the swap maturity)."

The RBI might opt to supply dollars if there's a notable disturbance in the overnight swap rate, the trader added. Additionally, the bank could choose to pay in the near forwards if it aims to prolong dollar supply.

The rupee's ascent is expected to be bolstered by a predominantly weak dollar. The dollar index stood at 102.70, following a dip to nearly a two-month low on Friday, prompted by a decline in U.S. Treasury yields that diminished demand for the dollar.

Despite a mostly positive U.S. jobs report released on Friday, concerns linger. While February's job additions surpassed expectations, January's payrolls underwent a significant downward revision. Moreover, the unemployment rate climbed to a two-year high, and wage growth fell short of economists' projections.

"Big downward revisions, weak wages and rising unemployment suggest things are not quite as robust as the headline indicates," noted ING Bank in a statement.

Expectations for Federal Reserve rate cuts through 2024 are now hovering at just below 100 basis points, compared to around 80 bps last week. As the market dynamics shift, investors keenly await the RBI's response and its impact on currency markets in the coming days.