The Indian Rupee has staged a strong comeback in this holiday shortened week. The Indian currency climbed 2% from its Monday’s record low of 95.22/$, posting its best single-day gain since September 2013.
The currency opened at the 93.53/$ mark and went on to climb towards the 92.94 level against the dollar before closing at 93.10/$, up 1.8% from its Monday close.
The domestic currency markets were closed on Tuesday and Wednesday for local holidays. They will also be closed on Friday on account of Good Friday.
RBI action to curb rupee volatility
The surge in the rupee comes close on the heels of the recent curbs imposed by the RBI on currency open positions. Experts pointed out that the steps helped lift the sentiment for the currency.
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On Wednesday, the RBI put a cap on banks in terms of offering rupee non-deliverable forwards (NDFs) contracts to resident and non-resident clients, as it seeks to stabilise volatility in the currency.
In its notification, the RBI also said that authorised dealers will not be allowed to permit the rebooking of cancelled forward contracts.
The move came following the RBI’s cap on net open position for banks, as it imposed a limit of $100 million on these and asked the banks to comply with the same by April 10.
While this move was expected to reduce speculative positioning, it was short-lived as on Monday the currency breached past the 95 mark against the US Dollar, posting a record low of 95.22.
“Together, these measures significantly limit arbitrage opportunities. In simple terms, the RBI is narrowing the gap between offshore and onshore markets, ensuring that price discovery happens in a more controlled and transparent environment,” said Amit Pabari, Managing Director at CR Forex Advisors.
Oil prices and FPI outflow continue to weigh in
While the RBI’s latest moves are expected to help boost sentiment for the currency, rising oil prices, which have caused inflationary concerns, continue to cap gains for the rupee.
Geopolitical turmoil surrounding tensions in the Middle East kept oil prices elevated as Brent crude touched $106/bbl today. Asian currencies remain vulnerable as the continent relies on the Middle East for most of its energy flows.
US President Donald Trump, in a televised address, said that intensified strikes would be carried out in Iran in the next two to three weeks, which lifted the dollar index. The dollar moved back near the 100 mark on this uncertainty. The firmness of the greenback continues to pressure the domestic currency.
According to NSE data for April 1, foreign investors were net sellers of domestic equities worth Rs 8,072 crore. FPIs pulling out money shows a lack of confidence in the domestic currency as it indicates that more dollars are being demanded.
Outlook for rupee
“From a technical standpoint, if the ongoing unwinding continues to release dollar supply, the 92.50–92.80 zone could act as near-term support. On the upside, 94.80–95.00 remains a strong resistance band, where demand has consistently re-emerged,” says Pabari.
He adds that the broader trend, however, carries a more constructive bias, supported by the RBI’s recent measures, which are expected to gradually ease pressure and bring better balance to the market.
