All eyes on RBI in wake of rupee’s likely push higher, $5 bln swap maturity

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The Indian rupee’s likely rise at open on Monday and a $5 billion swap maturity will mean that all the focus will be on the Reserve Bank of India, traders said.

Non-deliverable forwards indicate rupee will open at 82.74-82.75 to the U.S. dollar compared to its previous close of 82.7850.

The RBI’s $5 billion dollar/rupee sell/buy swap matures on Monday. Reuters had previously reported that the central bank will take delivery of the swap, which would take $5 billion out of the system and inject proportionate rupee liquidity.

“Two things to watch for today”, an FX trader at a bank said. “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 may supply dollars if there is “a serious dislocation” in the overnight swap rate, he said. It may additionally opt to pay in the near forwards if it wants to “make last” the dollar supply.

The rupee will be helped by a mostly soft dollar. The dollar index was at 102.70, after dropping to a near two-month low on Friday amid a fall in U.S. Treasury yields dented demand for the dollar.

The closely watched U.S. jobs report out on Friday was mixed. While the job additions for February surpassed expectations, the January payrolls witnessed a significant downward revision.

Further, the unemployment rate rose to a two-year high and wage growth was softer than what economists had expected.

“Big downward revisions, weak wages and rising unemployment suggest things are not quite as robust as the headline indicates,” ING Bank said in a note.

Federal Reserve rate cut expectations through 2024 are now at just below 100 basis points. At one point last week, they were at near 80 bps.

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