There was high-octane drama in the forex market on Wednesday. The rupee went into a tailspin in the morning and was down more than 3 per cent by 10.30 am, even as market participants watched thunder-struck.

It recovered slightly in the afternoon, perhaps with some central bank help, to an intra-day high of 66.9. However, it ended the day at 68.80. The Food Security Bill, ongoing skirmish in Syria and its effect on crude oil prices are cited as the triggers for this round of selling. We caught up with some forex dealers to check the mood in the dealing rooms. Here’s what they had to say:

Circuit filter

Confusion prevailed in exchange-traded currency futures market on Wednesday morning as dealers could not put in orders. “Order entry in currency derivative contracts for the first six months is not accepted if the contract price moves 3 per cent above or below the previous day’s close,” says S. Venkateswaran, Partner, Maconochie & Co. Many brokerages, therefore, could not enter orders around 10.30 am when the contract price rose 3 per cent above the previous day’s close. But the exchanges exercised their discretion to push the circuit limit by another 2 per cent in order to let trading continue.

Monjit Gogoi, Regional Director, Alpari Financial Services, believes that the currency fall was due to genuine dollar demand from importers and foreign institutional investors who want to move money out of the country after selling bond and equity assets. He thinks expectation of the rupee hitting 70 to 72 against the dollar soon, is causing urgency. With external debt to the tune of $172 billion falling due by March 2014, he feels companies with these obligations could also be lining up to buy dollars.

Reducing losses

Abhishek Goenka, CEO, India Forex Advisors, concurs saying Wednesday’s trading showed there was a mad rush for dollars. “Everyone is in a hurry as there is the fear that you can lose Rs 10 lakh in the next ten minutes. We are advising importers to buy dollars at every level. This is naturally creating a huge demand for the greenback. Exporters, on the other hand, are not selling since they don’t think the rupee has bottomed yet.”

“RBI did intervene on Tuesday and it is again intervening periodically today. But the interventions are resulting in only short-lived pull-backs. Given the limited fire-power (forex reserves) there is not much they can do,” added Gogoi.

Inter-bank market

The inter-bank market is, however, quiet, and in a wait-and-watch mode. Ajay Marwaha, Head Trading, Treasury, HDFC Bank, says, “The volumes are currently very low in the inter-bank market. Since RBI’s liquidity tightening measures announced in July, the rupee has depreciated another 15 per cent and banks are keenly tracking RBI’s further rate action. As it stands, the 91- and 182-day treasury bills were auctioned at 100 basis points above the cut-off last week. This raises the question as to whether this signals another increase in interest rates by the central bank.”

One group that is cheerful amidst all this gloom is the small retail investor who trades in exchange-traded currency futures and options. “Around 60 per cent of the transactions in exchange-traded futures and options comes from trading. These traders are happy with the movement of more than one rupee every day,” says Venkateswaran.

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