Some recovery in domestic stock markets following the release of macroeconomic data also supported the Indian currency, even as it remained under pressure due to high crude oil prices and continued foreign fund outflows.
At the interbank forex market, the rupee opened at 86.57 and touched an intraday high of 86.45 before closing the day at 86.62 (provisional) against the dollar, registering a gain of 8 paise over compared to the previous closing price.
On Monday, the rupee recorded its sharpest single-day fall in almost two years, ending the session down 66 paise at an all-time low of 86.70 against the US dollar. The previous record fall of 68 paise in a day was observed on February 6, 2023.
The local unit has fallen more than the Indian rupee fell to its all-time low on Tuesday, January 14, due to strong bidding on the dollar, fueled by the maturity of positions in the non-deliverable forwards (NDF) market, while the likely reserve intervention The Bank of India (RBI) helped limit losses.
The Indian rupee hit a low of 86.6475 before closing at 86.63 against the US dollar, lower than the close of 86.5750 in the previous session. The currency was under pressure for much of the session due to broad demand for dollars, driven by maturing positions in the NDF market.
State-owned banks were spotted offering dollars, most likely on behalf of the RBI, while dollar offers from foreign banks also helped limit the rupee’s decline.
The domestic currency posted its steepest one-day decline in almost two years on Monday as the dollar hit a more than two-year high on declining expectations of interest rate cuts by the US Federal Reserve.
The rupee’s one-month implied volatility, a gauge of future expectations, rose to a 16-month peak of four percent that day.
According to Reuters news agency, the central bank plans to be judicious in using foreign exchange reserves to ease domestic currency market volatility amid strong global headwinds.
The dollar index last traded at 109.5 after cooling off a two-year peak, boosting most Asian currencies.
Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities said, “The rupee was trading at 86.60, witnessing volatility as the US dollar remained steady around 109.504, while crude oil prices fluctuated between $77 .50 and $77. Positive buying in capital markets, especially in PSU stocks, coupled with DII inflows over the past two days, provided minor support to the rupee.”
“As budget expectations rise, these factors could provide further strength. The trading range for the rupee is projected between 86.25 and 86.85 with participants focusing on domestic developments and global cues for direction,” Trivedi said.
Investors are now awaiting the release of US wholesale and consumer price inflation data due on Tuesday and Wednesday respectively.
