The Indian rupee could not mirror the gains in its Asian peers on Thursday due to dollar demand related to the Indian central bank’s intervention to support the rupee one month back during the country’s unexpected election outcome.
At the interbank foreign exchange market, the rupee opened at 83.52 (Dh22.75) and lost further ground to trade at 83.54 (Dh22.76) against the greenback in initial deals, registering a fall of 5 paise from its previous closing level.
The central bank had intervened to support the rupee as the currency slumped on June 4 because of a narrower than expected victory margin for Prime Minister Narendra Modi’s alliance.
Its intervention in the one-month non-deliverable forwards matures on Thursday, which is likely fuelling the elevated demand for dollars, traders said.
The dollar index fell 0.3% on Wednesday and Treasury yields dipped after data signalled the U.S. economy is cooling, boosting hopes of rate cuts by the Federal Reserve.
While most Asian currencies rose by 0.1% to 0.2%, the rupee was unable to gain due to heightened demand for dollars.
The dollar/rupee fix was last dealt at a premium to the daily reference rate that the Reserve Bank of India (RBI) releases in the afternoon. The premium signals elevated demand for dollars. The rupee could face some pressure but “since the RBI is aware, they may try to manage and limit weakness”, a senior FX trader at a foreign bank said.
Odds of a Fed rate cut in September have climbed above 70%, according to CME’s FedWatch tool, on growing signs of weakness in U.S. manufacturing and the jobs market.
The US economy on a cooling path would allow the Fed to embark on calibrated easing of two cuts this year, DBS Bank said in a note.