Rupee Strengthens Against Dollar After RBI Intervention

The Indian rupee strengthened against the US dollar on Wednesday due to dollar selling by banks in the offshore non-deliverable forwards market, likely on behalf of the Reserve Bank of India.

The local currency appreciated 3 paise to open at Rs 83.54 against the greenback on Wednesday; however, it was the lowest opening level for the Indian unit since April 19, according to data on Cogencis. It closed at Rs 83.57 on Tuesday. 

“RBI’s likely dollar sales are why it (rupee) rose from Rs 83.62 a dollar overnight to Rs 83.54 a dollar,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.

The Indian currency was trading at Rs 83.60–83.62 against the dollar in the offshore market before markets opened, even as it prepares for the release of the crucial US Federal Open Market Committee meeting outcome and the May inflation print later today.

“If today’s US CPI and Fed remain below expectations in their policy meeting, and the Fed remains dovish, the dollar index will correct to 104.00, and the rupee may move towards Rs 83.25 levels. The probability for which is 40%,” said Amit Pabari of CR Forex Advisors.

“If it’s in line with expectations of the data-dependent Fed, the dollar index shall remain in a range of 104.50 to 105.50, and the rupee will consolidate near Rs 82.0–83.50,” Pabari said.

The dollar index, which measures the US currency’s strength against six major currencies across the world, remained stable around 105.16 before the Fed’s policy outcome. The index settled at 105.25 on Tuesday, according to Cogencis.

However, crude oil prices increased after the U.S. Energy Information Administration raised the oil demand forecast, which is expected to exert pressure on the Indian unit.