The Indian rupee closed marginally stronger on Thursday, ending at 90.9050 per U.S. dollar, up slightly from its previous session close of 90.9475. According to reports from The Economic Times, the currency's modest gains were supported by strength in regional currencies, while elevated demand to buy dollars at the daily reference rate kept overall gains in check. The reference rate, which serves as a benchmark for settling contracts, often attracts concentrated dollar buying or selling activity. As per a trader at a state-run bank, the dollar demand at the reference rate was elevated due to maturity of contracts in the non-deliverable forwards market, which was met with decent selling interest from interbank participants.
Dollar-rupee forward premiums rose across most tenors, with the 1-month forward premium drifting higher to 15 paisa and the 1-year implied yield rising 2 basis points to 2.65%. As reported by The Economic Times, traders pointed to a broad-based inclination towards paying mid-to-far tenors among interbank participants. The elevated demand at the reference rate was met with decent selling interest from interbank participants, with the market positioning for anticipated inflows while taking comfort in the central bank's presence around the 91 per dollar mark.
The market dynamics reflect a cautious approach as traders position for potential inflows while maintaining confidence in central bank intervention capabilities. According to a trader at a state-run bank quoted by The Economic Times, earlier in the week the central bank had likely intervened to help the rupee avert a decline past the psychologically important level. The dollar index remained steady at 97.7 while the Chinese yuan climbed to a near three-year high, providing additional support for regional currency strength.
Lingering worries about escalating geopolitical tensions between the U.S. and Iran kept oil prices elevated ahead of a third round of talks between the two countries. As reported by The Economic Times, U.S. strikes on Iran could cause a sudden spike in oil prices by $5-10 per barrel and prices would remain highly volatile if tensions persist. Exporters are advised to take advantage of the recent rise in forward premiums to take on partial hedges, while importers are advised to keep buying major dips on spot USD/INR, according to Anil Bhansali, head of treasury at Finrex Treasury Advisors.