Indian rupee hemmed in by mild Asia weakness, RBI backstop at 90.70-90.80

MUMBAI: The Indian rupee is set to open flat and hold a narrow range on Wednesday, with traders balancing mild weakness across Asian currencies against persistent central bank backstop in the 90.70–90.80 zone.

The 1-month non-deliverable forward indicated the rupee will open in the 90.66-90.70 range versus the US dollar, having settled at 90.6725 on Tuesday.

The rupee has repeatedly found support in the 90.70–90.80 area in recent sessions, with bankers flagging that the Reserve Bank of India has been actively intervening across levels in that zone.

They say that the RBI has been consistently on offer around 90.70–90.80 on the interbank order-matching system, absorbing dollar demand and reinforcing the pair’s near-term ceiling.

This round of intervention over the past three sessions contrasts with the episode before that, when the RBI was seen stepping in aggressively before the start of local trading, front-loading dollar sales to shape sentiment at the open rather than leaning against moves during the session.

“By showing up consistently around 90.70–90.80, the RBI is telling the market that it is uncomfortable with the topside (on dollar/rupee) for now,” a currency trader at a Mumbai-based bank said.

“I am at a loss why this level. However, what it does is it reduces the incentive to chase 91.”

Asia struggles

Asia currencies were marginally lower on Wednesday, while the dollar index inched up to the 97.20 level. The dollar drew support from comments by Federal Reserve Governor Michael Barr that the central bank is likely to be on hold for some time amid inflation risks.

Investors are currently pricing in about two rate cuts by the Fed this year, with the first most likely in June.

The minutes of the Fed’s latest policy meeting, due later in the day, will provide further clarity on the thinking of policymakers.