RBI Intervention Sees USD/INR Exchange Rate Gain

After dropping to a two-month low against the US Dollar earlier this month (weakening to 63.0025) the Rupee has staged an impressive rebound. The Rupee gained on the ‘Greenback’ after the Federal Open Market Committee issued a surprisingly dovish policy statement following its latest meeting and bets that the Fed might delay adjusting interest rates until September of this year kept the US Dollar under pressure. As the Rupee surged, posting gains in seven consecutive trading sessions, the Reserve Bank of India (RBI) intervened in the currency market in order to keep the Rupee trading in the region of 61.50 – 63.00.

One locally-based forex trader said of the situation; ‘There are huge flows but the RBI is there like a rock. They can’t depreciate the currency, all they can do is stop it from appreciating by buying Dollars to support exports.’ Similarly, foreign exchange analyst Sandeep Kanihama; ‘Investors’ assessment that the Fed won’t be raising rates soon is aiding the currency’s stability. Intervention by the central bank too has kept volatility in check.’ The Rupee also lost a little ground against the US Dollar as the pace of US inflation was shown to have accelerated unexpectedly and the nation’s Markit Manufacturing PMI gained rather than declining as forecast.

Ecostats for India are in short supply this week so much of the Rupee’s movement has been down to developments in the US, fluctuations in commodity prices and RBI interventions. Next week there are a couple of Indian reports worth noting, including Tuesday’s infrastructure output number for February and HSBC’s Manufacturing PMI for March. The measure of India’s manufacturing sector printed at 51.2 in February and economists have predicted that the gauge moved further away from the 50 mark separating growth from contraction this month by reaching 52.88.

In the hours ahead, the US Dollar to Indian Rupee currency pair may experience notable movement in response to the US Durable Goods Orders report for February. Durable goods orders were shown to have increased by 2.8% in January and a less impressive rise of 0.2% is on the cards for February. Durables excluding transportation ate also believed to have risen by 0.2%. As positive US data could potentially have an impact on the direction taken by the Fed with regards to interest rate hikes, a better-than-forecast result may bolster the US Dollar and see the Rupee slide.