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