Rupee Snaps Six-Day Winning Streak at 93.93 per Dollar as State Banks Step in with Aggressive Bids
The Indian rupee snapped its six-session winning streak on Monday, closing marginally lower after active dollar purchases by state-run lenders countered the domestic currency's recent upward momentum.
In thin trading ahead of Tuesday’s foreign exchange market holiday, the rupee opened firm and touched a six-month peak of 93.69 against the greenback, extending gains from the previous week where it advanced over 1%. However, persistent bidding from public sector banks absorbed available dollar supplies throughout the session, pulling the local currency back to settle at 93.9275 per dollar, compared to its previous close of 93.9050.
Suspected RBI Absorption Caps Upside
Foreign exchange dealers noted that the heavy dollar bids from state-run banks bore the hallmarks of intervention by the Reserve Bank of India (RBI). The central bank has been actively managing foreign exchange liquidity to curb one-sided volatility while addressing long-standing demand-supply imbalances in the market.
The rupee has recovered sharply over the past month, gaining roughly 3.25% after nearing all-time lows, supported by softer international crude oil benchmarks and renewed foreign portfolio inflows into Indian equities. Despite these positive inflows, analysts expect the central bank to remain a buyer on dips rather than letting the currency strengthen unchecked.
Madhavi Arora, lead economist at Emkay Global, stated that the RBI is likely to utilize any sustained improvement in foreign inflows to replenish foreign exchange reserves rather than permitting excessive currency appreciation. The central bank's room for letting the rupee surge is further constrained by domestic macro factors. The RBI’s net short dollar position in the forward market surged to an all-time peak of nearly $240 billion in September, leaving policymakers with sizeable forward delivery commitments alongside India's ongoing current account financing requirements.
Resilient US Economic Indicators Support Dollar
Beyond domestic central bank action, external cues provided support to the greenback. The US dollar found renewed footing after official data revealed that US non-farm payrolls jumped by 165,000 in October, far outpacing the consensus forecast of 65,000. The robust labor reading pushed US 10-year Treasury yields higher, dampening expectations for rapid monetary easing by the Federal Reserve.
Amit Pabari, managing director at FX advisory firm CR Forex, highlighted that the firm October jobs report gave the dollar an immediate leg up. Global currency traders are now awaiting the US retail inflation release on Tuesday evening, where consensus estimates project an annual rate of 3.9%. A higher-than-anticipated reading could lend additional momentum to the dollar across emerging market pairs.
Key Levels to Watch for Market Participants:
- Immediate Support: Analysts peg spot USD/INR support near 93.50, where strong state bank bidding and importer hedging are expected to emerge.
- Overhead Resistance: Resistance is positioned around the 94.30 mark, a zone likely to attract exporter sales should the pair see sudden pullbacks.
- Domestic Holiday: Indian foreign exchange and money markets will remain shut on Tuesday for a local holiday, with normal trading set to resume on Wednesday.
