The Indian rupee experienced slight weakness on Monday but managed to remain above the 82 level against the US dollar, thanks to dollar sales from custodial banks. As of 9:16 am UAE time, the rupee stood at 22.33 against the UAE dirham, a marginal change from Friday’s session. Throughout the current session, the South Asian currency has traded within a range of 22.33 to 22.35.
Foreign banks have been offering dollars, likely for their custodial clients, which has helped the rupee maintain its position just above 22.34. However, traders holding short USD/INR positions are hoping for a more decisive move below 82 Indian rupees to the US dollar. To achieve this, they expect the Reserve Bank of India (RBI) to refrain from intervening.
Traders report that the RBI stepped in and mopped up dollars when the USD/INR dipped below 82 in previous instances. This intervention has contributed to the increase in India’s forex reserves, which have now surpassed $600 billion.
The focus for the rupee and other emerging market currencies is on the upcoming policy decision of the US Federal Reserve, scheduled for Wednesday. While a rate hike is fully expected, investors are paying close attention to Fed Chair Jerome Powell’s comments and tone during the subsequent press conference.
The Fed’s dot plot indicates the possibility of one more rate hike after the upcoming one. However, investors believe the chances of this happening are slim. The expectation is that the Fed will continue to signal the prospect of further hikes, but given the turning credit cycle, they doubt it will follow through.
Most Asian currencies experienced declines at the start of the week, while the dollar index remained just above 101. In terms of rupee forward premiums, they were slightly lower, with the one-year implied yield standing at about 1.66 percent.
