The Indian rupee surged 67 paise to open at a two-month high of ₹94.30 against the US dollar on Thursday, September 3, after the Reserve Bank of India’s latest foreign-currency mobilisation far exceeded market expectations, strengthening the central bank’s ability to support the domestic currency.
The RBI said on Wednesday that India mobilised $136.38 billion through special foreign-currency schemes, significantly surpassing expectations. The inflows are expected to bolster the country’s foreign exchange reserves and give the central bank greater room to contain pressure on the rupee.
Non-resident deposits accounted for the bulk of the mobilisation, contributing around $127 billion. A further $3.89 billion was raised through external commercial borrowings, while overseas foreign-currency borrowings brought in another $5.26 billion, according to the RBI.
The rupee is expected to find further support from gains in Asian currencies and a retreat in the dollar index, which has fallen below 99.50, Reuters reported. The dollar’s decline has been largely driven by a strengthening Japanese yen.
According to the Reuters report, investors are now turning their attention to upcoming US economic data and comments from Federal Reserve officials for indications of the central bank’s policy direction and the likelihood of a rate hike this month.
Markets have raised their expectations of a Fed rate increase, with traders now pricing in roughly a two-in-three probability of a 25-basis-point hike this month, compared with 37% a week earlier, according to CME Group’s FedWatch tool, Reuters reported.
Oil higher. Yields higher. Dollar higher
According to market experts, the usual combination of higher oil prices, rising US Treasury yields and a stronger dollar should exert significant pressure on the Indian Rupee. The US 10-year Treasury yield recently climbed above 4.80%, while the Dollar Index moved above 99.70 amid growing expectations of a potential Fed rate hike.
Yet the rupee has bucked the trend, with USDINR slipping below 95. Analysts point to active RBI intervention and stronger foreign-exchange buffers as key factors helping the currency withstand these global headwinds.
Rupee Outlook
Amit Pabari, MD, Research Team at CR Forex Advisors, said that FCNR(B)-related conversions and active RBI intervention continue to provide support to the Rupee, although elevated crude prices and higher US Treasury yields remain key risks.
He added that once the swap settlement process nears completion after September 11, underlying import demand is likely to resurface, potentially putting renewed pressure on the currency.
“Immediate support for USDINR is placed at 94.35–94.50. The broader medium-term bias remains tilted towards a rebound to 95.50–96.00, once the impact of swap-related flows gradually fades,” Pabari said.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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