Rupee posts best week in 1-1/2 months on RBI's NDF move

The Indian rupee snapped a three-day rally to close weaker on Friday but notched its best week in a month-and-a-half following the Reserve Bank of India's move to clamp down on arbitrage trades between onshore and offshore markets.

The rupee ended the session at 82.6475 per dollar versus its previous close of 82.5725. The currency, however, rose more than 0.5% for the week, logging its best weekly performance since July 14.

The RBI asked some banks to stop taking fresh arbitrage positions in the non-deliverable forwards (NDF) market, boosting the rupee this week.


The move higher on the rupee following RBI's steps, prompted investors with long dollar positions to exit, lifting the local currency to a three-week high of 82.3625 on Thursday.

Whether the local unit is able to sustain this week's gains will largely depend on the reaction to the U.S. Federal Reserve Chair Jerome Powell's speech, traders said.

The rupee's strength to sub-83 levels is likely to lead to a round of dollar buying on "basic risk avoidance ahead of Powell's speech", a currency trader at a bank said.

Powell's speech later in the day at the Jackson Hole Symposium comes amid a debate about whether the recent resilient U.S. data would prompt the Fed to raise rates further. The Fed so far has said future rate hikes will be data-dependant.

"Maintaining his (Powell's) emphasis on the Fed's data-dependent stance and bringing up progress in U.S. inflation may potentially be perceived as a less hawkish view," Yeap Jun Rong, Singapore-based market strategist at broker IG said.

"But on the other hand, highlighting the risks of a re-acceleration in demand and the need for high-for-longer rates will likely be a more hawkish message."