The rupee strengthened for the third straight session on Tuesday and appreciated 40 paise to close at 95.38 (provisional) against the US dollar, supported by various RBI measures aimed at reducing spot dollar demand and curbing excessive positioning in the foreign exchange market.
Forex traders said measures including a dedicated dollar window for oil marketing companies through designated banks and higher costs for certain foreign exchange hedging transactions are expected to reduce dollar demand in the spot market and curb speculative positions against the rupee.
At the interbank foreign exchange market, the rupee opened at 95.53 against the US dollar; in intraday trade, the rupee touched a high of 94.96 and a low of 95.53 against the greenback.
At the end of the trading session on Tuesday, the rupee was quoted at 95.38 (provisional), registering a gain of 40 paise from its previous close.
On Monday, the rupee appreciated 93 paise, logging its steepest single-day gain in more than six months, to close at 95.78 against the US dollar.
In the last three trading sessions, the rupee has gained 150 paise against the American currency.
“The advance was driven by regulatory measures implemented by the Reserve Bank of India (RBI) to limit volatility and curb speculative trading, along with the unwinding of long positions, general dollar weakness, lower crude oil prices and recovery in the domestic equity,” said Dilip Parmar – Senior Research Analyst, HDFC Securities.
Having recovered nearly 2 per cent over three days from the recent high, the spot USD/INR has support at 95.00. While a sustained move below this threshold opens potential toward 94.50, ongoing external macroeconomic pressures are likely to temper further gains.
Meanwhile, Finance Minister Nirmala Sitharaman on Tuesday said the rupee has depreciated “significantly” over the past year and a half, and the RBI will continue its efforts to prevent excessive volatility in the domestic currency.
The Reserve Bank over the weekend announced a slew of measures to stem rupee fall.
The central bank announced the creation of a special window for oil marketing companies, which will take the dollar demand away from the spot market and tightened rules governing forex derivatives trades to curb speculative bets against the rupee.
It also asked banks to maintain a 20 per cent reserve for dollar purchases of over USD 2 million.
The minister said most of the rupee’s volatility is stemming from external challenges, while the government is ensuring that macroeconomic fundamentals remain sound within the country.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading at 102.32, lower by 0.26 per cent.
Brent crude, the global oil benchmark, was trading lower by 1.93 per cent at USD 104.59 per barrel in futures trade.
On the domestic equity market front, Sensex jumped 1,109.10 points to settle at 73,033.78, while the Nifty surged 358.60 points to 22,721.95.
Foreign Institutional Investors (FIIs) offloaded equities worth Rs 1,708.48 crore on a net basis on Monday, according to exchange data.