The Indian rupee rose for the second straight week against the dollar, supported by capital flows from the unwinding of remaining arbitrage positions and a sharp fall in oil prices following a brief cease-fire between the US and Iran. This is a record achieved six months ago.
The currency ended the day marginally lower after volatile trading, hitting a three-week high of $92.4150 to the dollar, before falling to $92.7550 during the day.
It ended 0.1% lower than its previous closing price and is up 0.4% this week.
In recent trading, the rupee was supported by the Reserve Bank of India’s move to impose limits on banks’ onshore foreign exchange net open positions, forcing lenders to sell dollars in the local market.
Oil prices fell after the United States and Iran agreed to a two-week cease-fire earlier this week, easing some concerns about prolonged disruptions to global oil supplies.
According to traders, the impact of both these developments has been factored into the current price and the rupee may soon resume its downward trend.
“The cushion that supported the stability of the rupee is starting to thin and this is where the story starts to change,” said Amit Pavali, managing director at currency advisory firm CR Forex.
“Just as domestic support begins to wane, the global situation is once again becoming uncertain.”
The room for further strength appears limited and a gradual move towards the 93.50-94.00 levels is likely, he added.
Traders also remain wary of the durability of the U.S.-Iranian cease-fire agreement, as reports of continued fighting continue to raise concerns about oil supplies, with the benchmark Brent crude contract trading around $97 a barrel, up from $90 on Wednesday.
Foreign investors continue to be net sellers of Indian stocks, indicating that demand for Indian assets remains weak.
Market participants are currently awaiting US retail inflation data to be released later in the day, and interest rate futures indicate there is little chance of a rate cut before September.
(Reporting by Dharamraj Dhutia; Editing by Harikrishnan Nair, Mrigank Dhaniwala and Ronojoy Mazumdar)
