The Indian rupee was little changed on Wednesday, despite broad strength in the U.S. dollar and higher crude oil prices, as likely dollars sales from the Reserve Bank of India helped prevent the local unit from moving towards its record low.
The rupee was at 83.2175 against the U.S. dollar compared to its close of 83.23 in the previous session. The RBI likely intervened and sold dollars in the non-deliverable forwards market to support the rupee, traders said.
“The RBI is likely to make its presence felt during the session as well,” which will likely prevent the rupee from depreciating beyond 83.25, a foreign exchange trader at a state-run bank said.
The rupee had hit its lowest level on record, of 83.29, in October 2022.
The dollar index was at 106.29, close to its highest since November 2022. The spike in U.S. treasury yields has underpinned the dollar’s strength.
A combination of resilient economic data, hawkish Federal Reserve rhetoric, and a budget deficit to be financed by borrowing has spurred the U.S. 10-year yield’s rise by over 40 bps this month.
“Our FX strategists expect USD/INR to move into a higher 83-85 range due to strength in broad USD and scope for some convergence to RMB (Chinese renminbi) weakness,” DBS wrote in a note. Investors will be keeping an eye on U.S. second-quarter GDP data and core personal consumption expenditure inflation data due later this week.
A FTSE Russell review on whether to include India in its emerging markets government bond index will also be closely watched. The decision is due on Sept. 28.
While India’s inclusion in JPMorgan‘s debt index is likely to draw sizable inflows, the RBI may temper gains for the rupee by purchasing dollars from the market as flows begin, JPMorgan’s head of emerging market economics told Reuters.
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