Rupee snaps 3-day winning run on RBI intervention, importer hedging

By Siddhi Nayak

MUMBAI (Reuters) - The Indian rupee snapped a three-day winning streak on Tuesday as the Reserve Bank of India (RBI) likely intervened through dollar purchases, while importer hedging further weighed.

The rupee ended at 81.8700 against the dollar, compared with 81.8150 at previous close.

The RBI likely bought dollars and conducted sell/buy swaps via public sector banks after the rupee reached a more-than-two-month high of 81.6750 in the session, three traders told Reuters.

The one-year dollar-rupee implied yield rose four bps to 1.73%, amid the RBI's possible intervention in the forwards market.

"The rupee's momentum is currently driven by the RBI," said Amit Pabari, managing director at CR Forex. "Even otherwise, factors like robust equity inflows, a weak dollar, and a relatively stronger Chinese yuan currently favour the rupee's appreciation."

Foreign investors have bought more than $5 billion of Indian equities so far this month, as per data from the National Securities Depository, supporting the rupee's strength.

Besides the dollar inflows, gains in the Chinese yuan have also contributed to the rupee's rise over the past few sessions.

The yuan rallied 0.6% to 7.14 against the dollar after the country's top leaders pledged to step up policy support to shore up a flagging economic recovery.

Investors are awaiting cues from the U.S. Federal Reserve's policy decision due late Wednesday where a 25 basis point rate hike is already factored in.

Investors will be watching out for commentary on the outlook for further rate increases.

An indication from the Fed that this cycle's terminal rate has been likely achieved would be market positive, DBS Bank said in a note.

"The overall signal from the central bank would be that the next time it makes a move, perhaps in mid-2024, it would be an easing measure," it added.

 

(Reporting by Siddhi Nayak; Editing by Sonia Cheema)