The rupee strengthened Friday to a peak of 83.78 per dollar, before closing weaker at 84.58, likely due to dollar purchases by the Reserve Bank of India (RBI). The rupee had closed at 84.48/$1on the previous day.
Strong dollar inflows in Indian equities and optimism of a trade deal between India and the US acted as tailwinds for the currency. On the other hand, dollar buying from public sector banks, likely on behalf of the RBI and importer hedging demand added pressure on the rupee, traders said.
The rupee opened at 84.09/$1 and strengthened to 83.78/$1 in the first few hours of the trade, a level where RBI likely absorbed dollars. The rupee then weakened to 84.51/$1, LSEG data showed.
“Reasons for the gains remain strong FPI flows, lower Brent crude prices and stronger Asian currencies amid fresh hopes of US-China trade talks. Rising hopes of a US-India trade deal also contributed to INR appreciation,” said Kunal Sodhani, vice president, FX and rates at Shinhan Bank India.
The currency’s sharp moves have also pushed up the rupee’s one-month realised volatility, which has risen to an over two-year peak of 5.1%, according to Reuters. “The RBI intervened in a big way by buying dollars, and possibly brought $1.5-2 billion on Friday,” a currency dealer said.The dollar index, meanwhile, was down 0.3% on Friday at 99.8, LSEG data showed.
“Until the dollar index remains below 100, I do not see the rupee losing much and there will be a slow move towards 83. There will be some corrections, but I am expecting a trend where the rupee is stronger,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
Institutions like Nomura and MUFG Bank are also expecting the rupee to be on a strengthening trajectory towards 84/$1 levels by December 2025.
MUFG Bank expects the currency to end the year at 84/$1, up from 87/$1 per its earlier forecast.
