Rupee adds to opening losses on onshore-offshore arbitrage, traders say

A customer hands Indian currency notes to an attendant at a fuel station in Mumbai
FILE PHOTO-A customer hands Indian currency notes to an attendant at a fuel station in Mumbai, India, August 13, 2018. REUTERS/Francis Mascarenhas

MUMBAI, May 19 (Reuters) - The Indian rupee extended its opening losses on Friday, falling to a fresh two-month low to the U.S. dollar on onshore and offshore arbitrage flows, traders said.

The rupee was at 82.7925 to the dollar by 10:56 a.m. IST, down from 82.7050 at open and 82.60 in the previous session. The local currency is at its lowest level since March 16.

The onshore 1-month outright rate is at 82.85/86, lower than 82.89/90 in the non-deliverable forward market.

The opening of the arbitrage alongside the overall dollar move is keeping USD/INR and near forwards well bid, a proprietary trader at a private sector bank said.

"RBI, at least it seems so, is not there. This is quite a surprise," he said.

The rupee and other Asian currencies came under pressure following another move higher on the dollar index. The dollar index was hovering near the highest level since mid-March, boosted by higher U.S. yields.

The two-year U.S. yield climbed to 4.28% overnight on comments by Fed officials and U.S. labour market data.

Two Fed policymakers said on Thursday that U.S. inflation does not look like it is cooling fast enough to allow the central bank to pause its interest-rate-hike campaign.

Meanwhile, the number of Americans filing new claims dropped more than expected, suggesting a resilient labour market.

Firm jobless claims figures alongside optimism in debt ceiling talks are pushing yields "meaningfully higher", DBS Research said.

USD/INR overnight cash swap rate rose, which some traders said was due to likely paying by public sector banks. On Thursday, the overnight swap rate had plunged, fuelling worries over cash dollar shortage.

Reporting by Nimesh Vora; Editing by Sohini Goswami

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