Rupee appreciates sharply ahead of Fed Chair speech as RBI steps aside

Closes Friday at 73.6950 to the dollar against its previous close of 74.2225, up 0.73 per cent, the highest since June 17

Ahead of the Jackson Hole speech by Fed Chair Jerome Powell, the Indian rupee appreciated on Friday to post its biggest weekly gain in four months in the absence of the Reserve Bank of India (RBI) intervention. Powell said the US Fed could slow bond purchases by the end of this calendar year, but rates will remain soft for some more time. 
 
The rupee closed at 73.6950 a dollar on Friday, against its previous close of 74.2225, gaining 0.73 per cent, highest since June 17. It has gained 1 per cent in the week, most since the week ended April 30. All the Asian currencies gained on Friday as the dollar index was flat at around 93.14 level. However, the rupee’s gain was the sharpest in the region.
 
Currency dealers say until Thursday, the RBI was heavily intervening to let the rupee rise as a chunk of dollars flowed in. This, they say, was in anticipation of a dollar bond issue by a large Indian corporate group and on account of a qualified institutional placement by a public sector bank.
 
“The central bank, for a change, waited on the sidelines on a day where a clearer taper signal could come in from the Fed chair. If that happens, the rupee will again come under pressure,” said Imran Kazi, vice-president at Mecklai Financial.

The RBI’s absence from the market “prompted exit of long positions on the dollar”, said Sriram Iyer, senior research analyst at Reliance Securities.
 
However, the rupee appreciating to 73.50 a dollar level or strengthening further should bring back the RBI again in the market to accumulate the incoming dollars, said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors.  With the IPO of India’s biggest LIC, asset monetisation and BPCL divestments lined up, inflows will continue to hit the local shores even as taper uncertainties continue, say dealers.
 
Currency dealers are of the opinion that with the hawkish tone of Powell in Jackson Hole speech, a lot of volatility for the local currency could be on its way. There will be outflow pressure related to such tightening of policy stance by the US Fed, but several IPOs and qualified institutional placements (QIPs) lined up will compensate for that. In the end, the rupee will find its own level, but that will probably be after a lot of two-way volatility, dealers say. 
 
Some of that was clear on Friday. Currency consultant IFA Global said: “dollar bulls were actively defending the 74.10 marks in anticipation that the RBI would step in, but since that did not happen, the rupee dropped to 74 levels and then towards 73.80 was quick as the stop losses got triggered.”