Indian rupee RBI-spurred relief rally to fade on Asia FX weakness, hedging

MUMBAI: The Indian rupee is poised to weaken at Friday’s open, mirroring declines in Asian peers and showing little follow-through to ​the central bank’s intervention-driven rally.

The rupee is seen opening near ‌96.30 to the US dollar on Friday, per traders, after settling at 96.20 on Thursday when it climbed 0.64%.

The currency snapped its losing streak on Thursday, driven ​largely by aggressive pre-market dollar selling from the Reserve Bank of India ​that continued through the session, according to traders.

The rupee had ⁠declined 2.5% over the previous nine days and was at risk of ​slipping to 97 for the first time before the intervention.

Markets will be watching ​whether the RBI follows up with another round of intervention, a currency trader at a bank said.

Such follow-through has at times been used in the past to reinforce ​the central bank’s discomfort with further rupee depreciation, he added.

He said that ​the rupee would otherwise likely come under renewed pressure, noting that dips in dollar/rupee have ‌been ⁠difficult to sustain and tend to spur higher importer hedging interest.

Weak Asia

The rupee will have to contend with weakness in most Asian peers, while drawing a measure of support from the pullback in oil. The dollar ​index held near ​a six-week high.

Focus ⁠remained firmly on US-Iran headlines for cues on progress in resolving the conflict.

Washington and Tehran continued to hold opposing ​positions on Iran’s uranium stockpile and control of the ​Strait of ⁠Hormuz, although US Secretary of State Marco Rubio noted there had been “some good signs” in talks.

“It remains unclear whether a breakthrough is imminent,” MUFG Bank ⁠said ​in a note, while noting that tentative ​optimism around a potential agreement was supporting risk sentiment.

U.S. equities rose on Thursday, with futures indicating ​the upward momentum could extend.