The Indian rupee ended Friday at 95.3775, up 0.2% from Thursday's close of 95.54, rounding out a 0.3% weekly gain against the US dollar, as per The Economic Times. This represents a reversal from earlier Friday losses when the currency fell 10 paise to 95.55 in early trade, weighed by FII outflows and sustained disruptions in global crude oil supplies. The currency had opened at 95.54 against the greenback before slipping further during the session, but deposit-related dollar inflows triggered stop-losses and unwinding in positions betting on rupee weakness in afternoon trade. The rupee had settled 11 paise lower at 95.55 on Thursday, reversing earlier gains that had seen the currency touch a high of 95.40 during intraday trading. This represents a decline from Tuesday's close of 95.44, marking continued volatility in the foreign exchange market.
The Reserve Bank of India has shifted to a more constant pattern of intervention to support the rupee over the past month, moving away from its previous approach of stepping in only during larger swings. According to Business Standard, this change comes after the central bank attracted $73 billion in fresh foreign currency inflows since June through its various swap facilities. The RBI demonstrated this enhanced approach by spending $7 billion in a single day intervening in both onshore and offshore markets as the rupee approached a record low. This strategic shift has brought near-term volatility down to a 10-month low, with the dollar-rupee one-month implied volatility declining by approximately 100 basis points this month, significantly outpacing the six basis points drop in global currency gauges. As per BNP Paribas Asia emerging markets rates and FX strategist Chandresh Jain, the RBI's primary objective is to dampen volatility and the velocity of moves in either direction, rather than fundamentally altering the trajectory.
MSCI equity index rebalancing is due on August 31, providing an additional boost to the rupee as inflows related to the rebalancing provided an additional boost to the currency, according to The Economic Times. The Reserve Bank of India's discounted non-resident dollar deposit scheme ends on Monday, with bankers noting that the central bank's decision to give lenders greater flexibility in accessing its swap facility should prevent excess dollar liquidity from lingering in the banking system for an extended period. Month-end importer dollar demand weighed on the local currency early in Friday's session, but flows ahead of MSCI index rebalancing and some offers from state-run banks led to a sharp reversal in the pair. The RBI told banks they could swap dollars raised from these deposits more than once a week, giving them flexibility to handle large inflows before its subsidised deposit scheme ends.
Domestic equities opened on a positive note on Friday after two straight sessions of losses, supporting gains in the local unit, as per Business Standard. The BSE SENSEX was up 245.56 points (+0.32%) to 77,191.80 and the NSE NIFTY 50 was up 54.20 points (+0.22%) to 24,147.50 in early trade. This marked a turnaround from Thursday's session when Sensex fell 539.35 points to settle at 76,933.59 and Nifty dropped 116.90 points to 24,090.85. The key equity indices had ended with significant losses on Thursday, weighed down by subdued investor sentiment amid the weekly expiry of derivatives contracts on the BSE. However, Foreign institutional investors offloaded equities worth ₹298.26 crore on a net basis on Thursday, according to exchange data, representing a significant increase from Wednesday's net purchases of ₹502.63 crore.
The rupee's recovery was supported by falling Brent crude prices and a pullback in the dollar from previous day highs, as reported by The Hindu. Brent crude futures fell below $90 per barrel for the first time in several sessions amid continuing discussions between Iran and Oman regarding a temporary shipping corridor through the Strait. While no final agreement has been reached, the fact that negotiations are continuing has reduced fears of a prolonged disruption to global oil supplies, forex traders said. Brent crude was trading lower by 0.48 per cent at USD 89.27 per barrel in futures trade, extending gains for a fifth consecutive session amid signs of diplomatic progress in the Middle East. The contract extended its decline to a fourth day in Asian trading on Thursday on expectations that talks between Iran and Oman might open the Strait of Hormuz. Meanwhile, crude oil saw its prices rise as the price of the benchmark, Brent Crude, remained around the $90 mark as US-Iran discussions see no visible progress, tempering the rupee's stability hopes. Market participants are also closely monitoring US Fed Chair Kevin Warsh's speech at the Jackson Hole Symposium for further policy cues. Asian currencies traded mixed, with the dollar little changed ahead of Federal Reserve Chair Kevin Warsh's speech at Jackson Hole later on Friday, as reported by The Economic Times. Market participants seek greater clarity from Warsh on his stance towards persistent inflation, the Fed's policy approach to tackling it, and whether he can soothe concerns amid recent bond-market turbulence. His hesitation to offer forward guidance has, in itself, added to investor uncertainty.
