Rupee weakens to new intra-day low as investors exited from carry trades

Rupee slipped to a new intra-day low of Rs 83.97 against the US dollar on Wednesday as investors exited from carry trades, which utilised the Chinese yuan and the Japanese yen to fund long positions on the rupee, said dealers.

Market participants said that there was strong demand for the greenback among importers which further weighed on the Indian unit.

The rupee settled at Rs 83.95 a dollar, against Rs 83.96 per dollar on Tuesday.

The dollar index, which measures the strength of the dollar against a basket of six major currencies rose to 103.28 on Wednesday, against 103.11 on Tuesday.

The Reserve bank of India intervened through dollar sales in non-deliverable forwards (NDF), spot over-the-counter (OTC) and futures market to contain the volatility in exchange rate, said market participants.

 

“Indian rupee fell to a new low of 83.9725 as the RBI showed its presence by selling dollars near this level. It made a high of 83.87 but at this level dollar was bought to bring it back to 83.96 still short of 84.00,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.

Additionally, market participants said that the RBI asked some banks to refrain from speculative trading against the rupee.

“Heard from the market that the RBI has been checking the trading limit and positions of some top banks,” said a treasury head at a private bank. “Whenever there is significant volatility or unidirectional movement happens, RBI takes precautions,” he added.

In August 2023, the RBI had imposed an informal ban on dollar/rupee arbitrage trades to prevent the rupee from hitting a record low. Banks had been exploiting price differences between the OTC and NDF markets during this period. These restrictions were later lifted in February. 

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.

In the current financial year, the rupee has depreciated by 0.7 per cent. In the current month it has depreciated by 0.3 per cent.