The Indian rupee jumped sharply to close at 95.00 per dollar on Friday, marking its best single-day gain in nearly two months and representing a 0.73% increase from the previous session's close of 95.70 per dollar, as reported by The Economic Times. This represents the rupee's best day since April 2, with the currency gaining similar amounts week-on-week despite being flat for the month. The dramatic recovery came as likely dollar selling intervention by the central bank reversed the trajectory, with market participants confirming that state-owned banks likely sold dollars on behalf of the RBI, helping offset pressure from elevated dollar demand linked to maturing positions in the non-deliverable forwards market. The rebound came as easing concerns over the Iran conflict improved global risk sentiment, while remarks from Reserve Bank of India Governor Sanjay Malhotra boosted confidence around the rupee's outlook.
Brent crude prices fell nearly 2% to around $91 per barrel on Friday, driven by expectations of easing supply disruptions after reports suggested the United States and Iran could extend a ceasefire agreement and resume shipping through the Strait of Hormuz, according to Business Standard. This decline came amid optimism that the U.S. and Iran could move closer to a peace deal that would reopen the Strait of Hormuz shipping lane for petroleum. According to four sources familiar with the matter, the agreement would extend the truce for another 60 days and allow traffic to flow through the Strait of Hormuz, a key artery for global energy supplies. The oil price retreat significantly supported the rupee's recovery from last week's record lows, as India imports more than 80% of its oil needs, with lower crude prices reducing the country's import bill and easing pressure on inflation and the current account deficit.
RBI Governor Sanjay Malhotra's comments in an interview with Mint provided crucial support for the rupee's recovery, with the governor stating that the RBI would do 'whatever is required' to ensure orderly movements in the foreign exchange market, according to CNBC TV18. Malhotra also indicated that after the rupee's recent depreciation, the currency now appears undervalued. These remarks followed two consecutive days of firm central bank intervention, which helped the rupee recover from its record low of near 97 per dollar hit on Wednesday last week. The governor's supportive stance has significantly boosted market confidence in the rupee's outlook, with FX advisory firm IFA Global noting that RBI's aggressive intervention may keep upside in USD/INR capped for a few sessions if crude remains below $110 per barrel. Market participants confirmed that the RBI intervened ahead of market open, which led to the rupee opening stronger by around 20 paise compared to NDF levels, as reported by Business Standard.
Dealers expect the rupee to trade in a range of 94.75-95.75 on Monday, with further strengthening anticipated if the ceasefire holds, according to The Economic Times. Jateen Trivedi, vice-president and currency research analyst at LKP Securities, noted that 'Lower crude prices have eased concerns over India's import bill and provided support to the domestic currency. Technically, the rupee has immediate resistance near 94.60, while 95.30 remains an important support zone in the near term'. The rupee had strengthened to 94.95 to the dollar before closing at 95.00, as reported by LSEG data. Brent futures dropped and were last hovering around $91 per barrel, aiding the local currency's performance.
The central bank's net short forward position for April contracted by $8.8 billion to $95.3 billion, with the RBI taking delivery of positions maturing in the up-to three months tenure, according to The Economic Times. Of the net short dollar positions, $13.52 billion were in one-month contracts, $10.90 billion were in one-month to three-month contracts and $20.15 billion were in three-month to one-year tenures. The remaining contracts were of more than one year. When these short positions mature, the RBI will have to sell dollars in exchange for rupee, impacting liquidity. Selling of dollars will also impact RBI's foreign exchange reserves, which were $681 billion as of May 22. Foreign exchange reserves have declined by $47.11 billion from the record high of $728.49 billion touched in the week ended February 27.
