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Rupee Partially Recovers Some of Friday’s Losses Following Public Holiday

INDIA
  • USD/INR edged slightly lower Tuesday, ending the session 0.16% in the red at 83.29. Nevertheless, the pair still stands relatively close to Friday’s cycle highs, where the rupee fell to a historical low of 83.43 in the closing minutes of the session and extended its decline in the offshore NDF market. Note local markets were closed yesterday for a national holiday.
  • The move higher last week supports the view that the RBI is allowing some asymmetric flexibility into its currency management, while the build up in FX reserves may also be contributing the broader slide in the rupee (according to Bloomberg’s estimates, the RBI bought $8.2bln of foreign currency assets during the week ending March 15).
  • 1m implied USD/INR vols reached 3.39% last week, its highest level since October, with the contract now capturing the 2024 general elections in which Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) is expected to secure another five years in power. While vols have since eased from these levels (to 2.76%), we remain some way off the month’s earlier multi-year lows.
  • On an intraday basis, Asia currencies were mostly higher overnight with the rupee performing in-line with its peers. A more moderate showing from the greenback this week and the PBOC reinforcing its support for the yuan could be easing upward pressure on USD/INR.
  • On the other hand, CIBC note that resilient US data and ongoing dollar strength pose a risk that the RBI could raise the intervention level towards higher USD/INR in order to keep the rupee “competitive” vs Asian FX peers.
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