Rupee ended nearly
flat on Monday as modest gains spurred by flows connected
toMSCI’s equity index rebalancing were eroded by persistent
hedging demand from corporates, while traders kept their focus
firmly on the upcoming monetary policy decision.
The rupee closed at 94.99 per dollar, almost unchanged from its close at 95.00 on Friday.
The currency gained in early trading on the back of
concurrent dollar sales from foreign and state-run banks, but
activity faded in the latter half of the session, a private
sector bank trader said.
In the near-term, the rupee is likely to be rangebound
between 94.50-96 with intra-day flows dictating price action, a
trader at a state-run bank said.
The flow impulses subdued the impact of higher crude oil
prices on the rupee, traders said. Brent crude oil futures
rose about 3% to $93.8 per barrel.
The U.S. said it struck Iranian military sites at the
weekend and Iran’s Revolutionary Guards said on Monday it had
targeted a U.S. base in response, the latest in a series of
exchanges amid negotiations to end the three-month-old war.
The U.S. and Iran have sporadically exchanged strikes since
their ceasefire took effect in early April, as negotiations
aimed at a more durable agreement drag on.
Amid the challenging backdrop for net energy importers like
India, traders are keeping their focus on the central bank’s
monetary policy decision and commentary due Friday.
“Markets continue to challenge RBI’s slightly dovish policy
guidance. RBI is focused heavily on domestic factors currently,
primarily inflation outlook while keeping an eye on growth
risks,” analysts at BofA Global Research said in a note.
“However, the market prices larger and faster pace of rate
hikes based on assumption of a shift in RBI’s reaction function
towards FX stability.”
The firm recommends receiving 1-year INR non-deliverable
overnight index swaps to fade extreme market pricing of
rate-hikes in the front-end, against the possibility of a
delayed hiking cycle as RBI awaits additional data unreactive
with its policy repo rate tool to FX market pressures.