Rupee strengthens to 86.33 as dollar index falls, RBI swaps aid gains

The dollar index, which measures the strength of the greenback against a basket of six major currencies, fell by 0.8 per cent to 107.97

The rupee settled higher against the dollar on Wednesday after a choppy trade due to fall in the dollar index as the markets continue to analyse President Donald Trump's initial actions on tariffs and oil production.

 

The dollar index fell by 0.8 per cent to 107.97. It measures the strength of the greenback against a basket of six major currencies.

 

The rupee settled at 86.33 per dollar on Wednesday, against 86.59 per dollar on Tuesday. The local currency has depreciated by 3.39 per cent in the current financial year, while it has witnessed 0.84 per cent depreciation in January so far.

 

 

“The rupee was looking at the dollar index which has softened. Initial reaction is positive, and the market will gain stability moving forward,” said a dealer at a state-owned bank.

 

Trump stated that his administration was considering a 10 per cent tariff on goods imported from China. He also announced plans to impose levies of around 25 per cent on imports from Mexico and Canada.

 

He hinted at potential duties on European imports but has so far refrained from enacting these tariffs, despite signing a series of executive orders on Monday.  

 

Market participants said that the Reserve Bank of India (RBI) conducted dollar-rupee buy-sell swaps in the non-forward deliverable market, which weighed on the premiums. Inflows in the debt segment further aided the rupee during the day.

 

“The rupee gained, backed by inflows from Vedanta and bonds as rate cut chances increased during the RBI meeting on February 7,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.

 

“The RBI continued with its buy-sell of swaps to provide liquidity in the near term to the market. It is deprived of the cash due to selling of the dollar by the RBI and huge borrowings from the central government in the last quarter,” he added. 

Meanwhile, the liquidity deficit in the banking system widened to Rs 2.70 trillion on Tuesday, highest in around a year, latest data by the RBI showed.

 

The RBI has been conducting daily variable rate repo auctions to address the current liquidity situation. It will conduct overnight auction of Rs 1.25 trillion on Thursday.

 

On Wednesday banks bid Rs 1.72 trillion at the VRR auction against the notified amount of Rs 1.25 trillion.