Rupee’s Volatility Falls to Six-Month Low on Stronger Monsoon Rains

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Rupee’s Volatility Falls to Six-Month Low on Stronger Monsoon RainsAn index of rupee’s volatility declined to its lowest level in six years after the increasing monsoon rains eased inflation concerns.

The rupee’s 3-month implied volatility, which measures the expected swings in the exchange rate used to assign value to options, plunged 16 basis points to steady at 6.29 percent. This was the weakest level since June 2008. The currency declined 0.1 percent to trade at 60.1375 per dollar in the spot market in Mumbai.

The June-September monsoon rains saw their shortfall shrink to 24 percent of the 50-year average since June 1, in contrast to a reading of 43 percent on July 11, based on the weather department data. The consumer prices rose 7.3 percent in June, the tiniest advance in data since the beginning of 2012.

“The narrowing of the shortfall in rains is a positive for the markets,” Vikas Babu, a Mumbai-based foreign-exchange trader at public lender Andhra Bank, told Bloomberg. “Inflows are buffering month-end dollar demand from oil importers.”

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Global funds invested over $5 billion into the country’s stocks and bonds in July, exchange data shows. The finance ministry expects the economy to grow by up to 5.9 percent in the 12 months ending March 2015, up from 4.7 percent a year earlier.

The rupee’s 3-month offshore non-deliverable forwards, which are normally settled using the U.S. dollar, advanced 0.1 percent to 60.65 per dollar.

Meanwhile, the South Africa’s rand appeared set to record its first monthly advance in three months as the possibility of an interest rate increase appeared more likely to happen at a time when volatility is at its lowest level in 13 years, attracting offshore buyers.

The rand’s 3-month implied volatility versus the dollar plunged to 10.05 percent in the past week, its lowest point since September 2001. The South African currency declined 0.5 percent to trade at 10.5646 per dollar as of 4:20 p.m. in Johannesburg. The yields on the government bonds that mature on December 2026 rose four basis points to 8.23 percent.To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Yashu Gola at yashu@forexminute.com