MUMBAI: The Indian rupee logged its best week in four months, buoyed largely by the Reserve Bank of India’s forceful intervention in the foreign exchange market and, to a lesser extent, by improving sentiment around U.S.–India trade negotiations.
The rupee settled at 87.9750 on Friday, up 0.8% for the week — its best performance since late June. The currency was among the top-performing Asian currencies this week.
The currency, which had been under relentless pressure, saw a turnaround in sentiment midweek after RBI intervened heavily in both the spot and non-deliverable forward markets to prop it up.
The central bank followed that with another round of dollar sales on Friday, reinforcing to market participants its commitment to support the rupee.
The RBI’s market actions and firmer Chinese yuan fixings underpinned the rupee’s rally, Goldman Sachs said in a note, adding that it expects the dollar/rupee pair to drift lower and trade within a 87–88 band, broadly in line with the August price action.
The bank further cited improving trade sentiment a potential tailwind for the rupee, noting positive rhetoric from U.S. President Donald Trump, claiming that India had agreed to reduce oil imports from Russia, and that an Indian trade delegation is in Washington this week.
Goldman said its bias would now be more towards owning put spreads on dollar/rupee, which is a bet that the rupee will strengthen.
Bankers said that the RBI’s aggressive action this week reflected an attempt to reset sentiment in the foreign exchange market after weeks of one-way positioning against the rupee.
By stepping in early — before the spot market opened — the RBI is signalling that it was willing to act decisively to shape expectations rather than simply defend a particular level, they said.
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