Rupee hits one-month high amidst Fed rate cut speculations and RBI intervention

Mumbai: The rupee continued its rally Thursday, closing at the highest level in a month at 87.82 per USD, as the dollar index weakened due to increased bets of further rate cuts by Federal Reserve and US-China trade tensions.

Gains in local equity markets and optimism surrounding India-US trade negotiations also helped the rupee, which hit a day's high of 87.70 per dollar, before paring some gains to settle 24 paise higher compared to 88.0750/$1 on Wednesday.

The rupee had gained the most in nearly four months on Wednesday, likely due to RBI intervention, where RBI said to have sold dollars heavily and unexpectedly. This pushed the rupee to trade at the stronger side of the 88/$1 mark for the second in a day row on Thursday.


RBI's likely intervention came after the local unit traded in a narrow band in the past three weeks with the central bank defending it from falling past the all-time low level of 88.80 per dollar, bank treasury officials said.

Speaking at IMF's 'Governor Talks' session, RBI governor Sanjay Malhotra Wednesday said RBI's effort is to ensure that there is an orderly movement of the rupee on both sides, and any undue or any abnormal volatility is curbed. He added that the central bank does not target a particular level for the rupee, and levels are decided by the market based on macroeconomic fundamentals, capital flows, and most importantly, current account flows.

“RBI wanted to give a signal to the market as most people were short on the rupee and long on the dollar. Speculators will not have a free hand going ahead. In the past two days, I estimate central bank intervention to be around $3-4 billion,” Sajal Gupta, executive director, head — Forex and Commodities at Nuvama, told ET.

Gupta said the rupee will strengthen for a week or two towards 87.80 levels, and again there will be a natural movement towards weakness. Michael Wan, senior currency analyst at MUFG, said their view of USD/INR rising towards 89.70 modestly over time was based on the expectation of uncertainty from US trade policy and the offsetting impact of structural reforms. But certainly did not take into account the strong pushback that was seen from RBI on Wednesday.

“Over the medium-term, we still think that some modest FX weakness is not a bad thing for India, given the global uncertainties and to maintain some export competitiveness,” Wan said in a report.