INR: USD/INR Trades Near Record Highs as Yuan Weakness Weighs on Asia FX

USD/INR continues to trade close to its all-time highs, up 0.17% on the session. The Chinese yuan’s grind lower weighed on most emerging market currencies during the APAC session, with the Thai baht and Indonesian rupiah leading declines in the region.

• RBI intervention is likely to limit any further substantial upside in USD/INR. Last Friday, a dealer at a state-owned bank who spoke to Business Standard said “For the next two to three weeks, the RBI will protect the 83.70 level.” Despite the close proximity to record highs, USD/INR vols have settled close to the post-election lows as the RBI remains focussed on maintaining stability.
• However, BofA note that while low-volatility helps improve the INR’s carry profile, an extended period of low-volatility may hinder market price-discovery and create pent-up hedging demand when the regime changes. They add that the RBI’s unwavering focus on building FX reserves by absorbing capital inflows may turn risks for INR “asymmetrically towards gradual depreciation”.