Indian rupee to rally as RBI tightens FX curbs, traders digest Trump remarks

MUMBAI: The Indian rupee is poised to open sharply higher on Thursday after the Reserve Bank of India rolled out a fresh set of measures to ​clamp down on speculative activity, with traders expecting chunky dollar sales as ‌positions are unwound.

The 1-month non-deliverable forward indicated the rupee will open in the 92.65-92.70 range versus the US dollar, having settled at 94.83 on Monday.

India’s financial markets were shut on Tuesday and Wednesday for local holidays.

On ​Wednesday, the RBI announced measures marking a step-up in its efforts to support the currency, barring banks from offering rupee ​non-deliverable forwards to resident and non-resident clients and preventing companies from rebooking cancelled forward contracts.

The move to ⁠curb arbitrage and speculative trading comes at a time when the local currency is already under ​pressure from worries over India’s balance of payments amid elevated oil prices and weak capital flows.

Rupee had slipped to an all-time low of ​95.23 on Monday even after the central bank moved to limit banks’ net open foreign-exchange positions in the onshore markets.

“Banks that had not yet cleared out arbitrage positions will be in a rush so the gap between onshore and offshore ​markets will expand further,” an FX trader at a foreign bank said, referring to ​the spread between onshore prices and non-deliverable forward points.

Globally, markets were taking cues from US President Donald Trump’s remarks that Washington’s “core ‌strategic ⁠objectives” in the Iran war were nearing completion but offered no clear timeline for an end to the conflict.

Brent crude oil prices climbed nearly 5%, stocks fell and the dollar strengthened as investors braced for the war to extend another two to three weeks after Trump said the US.would strike Iran “extremely ​hard.”

Analysts reckon that worries ​over the war and ⁠weakness in portfolio flows could keep the rupee biased towards further weakness.

“We continue to see the Indian rupee as vulnerable,” MUFG said, warning the ​currency could fall below 95 if the Middle East conflict persists ​and the Strait ⁠of Hormuz remains closed.