Rupee holds ground; cenbank intervention counters outflows, dip in Asia FX – ETCFO

The Indian rupee ended nearly unchanged on Monday, supported by the central bank’s market intervention as portfolio outflows and a decline in most Asian currencies weighed on the local unit.

The rupee closed at 84.3850 against the U.S. dollar, nearly unchanged from its close of 84.3950 in the previous session.

The currency hovered in a 2-paisa band through the day while its regional peers were down between 0.1% to 0.3%.

Asian currencies had kicked off Monday’s trading session on a positive note but most were unable to hold onto their gains through the session. The dollar index was steady at 106.7.

Dollar sales by state-run banks, on behalf of the Reserve Bank of India (RBI), helped the rupee avoid losses, traders said.

The central bank has been leaning on interventions in the non-deliverable forwards (NDF) market in a bid to limit the rupee’s decline while also not spending reserves heavily, a senior treasury official at a foreign bank said.

The use of non-deliverable forwards by the RBI has overtaken spot market interventions, Reuters had reported earlier.

India’s foreign exchange reserves declined for the sixth consecutive week to $675.65 billion as of Nov. 8, down more than $29 billion from their record high of $704 billion hit in late September.

The central bank’s market interventions have helped the rupee avert sharp falls in the face of sustained outflows from local equities as well as a surge in the dollar and U.S. bond yields post Donald Trump‘s victory in the U.S. Presidential elections.

The dollar index is up more than 2.5% in November so far while the U.S. 10-year Treasury yield touched an over-5-month high of 4.50% last week.

“Our perception remains that market positioning is quite stretched on dollar longs, and the greenback remains at risk of some technical correction in the near term,” ING Bank said in a note.