Rupee nears 84 per US dollar tracking Asian peers, foreign outflows

RBI intervenes in off-shore, spot markets to curb volatility

The rupee on Tuesday depreciated by 11 paise to end the day near 84 per dollar, tracking the weakness in its Asian peers and foreign outflows, said dealers.

The local currency settled at a new low of 83.96 a dollar against 83.85 on Monday after touching a day’s low of 83.97.

The Reserve Bank of India (RBI) intervened in all the segments of the foreign-exchange market, which prevented any sharp depreciation. 

Market participants said there was strong demand for the greenback in the offshore market, which further weighed on the Indian unit.

The dollar index, which measures the strength of the dollar against a basket of six major currencies, rose to 103.11 on Tuesday against 102.68 on Monday.

 

The RBI intervened through dollar sales in the non-deliverable forwards (NDF), spot over-the-counter (OTC), and futures markets to contain volatility in the exchange rate, they said.

“The RBI was there in the NDF market before the trading hours, and then it was also in the spot and futures markets,” said a dealer at a state-owned bank.

“We see the rupee touching 84 per dollar in the next two-three trading sessions,” he added.

The local currency had depreciated to 84.20 in the offshore market on Monday after the trading hours. However, it opened at 83.85 on Tuesday as the RBI intervened in the NDF market before the trading hours.

“The RBI was present in all the three markets and they could have sold around $1 billion today (Tuesday),” said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP.

The RBI has built a healthy pool of foreign exchange reserves, which are at $667 billion for the week ended July 26, an equivalent of around 11 months of import projected for 2024-25.

The central bank has always maintained it intervenes in the foreign-exchange market to curb volatility and does not target any particular level.

“The rupee is expected to be in a range of 83.85-84.05 tomorrow (Wednesday) with dollar buying expected to continue and the RBI supporting the Indian currency at a particular level,” Bhansali added.

Fears of a potential recession in the US, coupled with the unwinding of a widely used yen carry trade, have significantly influenced sentiment in the currency market.

“The rupee has lost out as foreign portfolio investors have been pulling out in the last few sessions. A part could be attributed to yen investors moving out,” said Madan Sabnavis, chief economist, Bank of Baroda.

“Carry trade using the yen, which has always been popular with investors, has lost its sheen because those who are unwinding will book losses. As this came just after the unemployment news in the US, it got an exaggerated response where it was interpreted as indicating a recession. It can be said that the markets had reacted with fickle emotion rather than on the basis of fundamentals,” Sabnavis added.

The rupee has depreciated 0.7 per cent this financial year and 0.3 per cent in August so far.