Rupee Rises Sharply As Rbi Curbs Force Traders To Unwind Dollar Bets

Mumbai, April 2: The Indian rupee soared early Thursday, rallying strongly against the US dollar after India’s central bank announced broad measures to curb speculation in the rupee overnight. The rupee rose as high as 93.29 to the dollar mid-session Thursday — after jumping to 93.53 dollars per rupee during the first hour of trade — for a gain of up to 1.4% from Monday’s close, one of the biggest intraday gains in recent history.

For its part, the Reserve Bank of India has been tightening the screws on arbitrage-driven flows and outright speculation against the rupee for months, all while trying to contain fallout for India’s current account given existing weaknesses in the capital account. The RBI’s actions this week made clear that it is unwilling to continue to allow market forces to move unchecked against the rupee.

On Wednesday, RBI broadened its assault on currency speculators, preventing banks from providing rupee non-deliverable forwards to any resident or non-resident customers, while also preventing banks from allowing companies to rebook cancelled forward contracts. The pair of announcements were seen quickly closing arbitrage channels that had contributed to speculative pressure against the rupee in recent weeks, forcing traders to unwind their dollar-long positions overnight and pushing the rupee sharply higher in Asia Thursday.

Against the Canadian dollar, the rupee rose 0.48%, while it rose 0.73% against the US dollar itself, as the greenback’s cross-rate against the Indian rupee dipped to 0.6878. Weakest against the rupee was the Hong Kong dollar, which declined 0.74% against the rupee overnight. Both the Chinese yuan and Russian ruble fell against the rupee as well, declining 0.53% and 0.54% respectively, while the Japanese yen, euro, pound and Swiss franc also traded lower. The krona was the only currency to appreciate against the rupee, rising by a slim 0.25%.

Helping lift the rupee overnight was widespread dollar weakness in the global market. The US dollar index drifted toward 100 overnight as markets continued to reassess risk following US President Donald Trump’s primetime address on Wednesday evening, during which he promised to punish Iran “very rapidly and very strongly” within the next two to three weeks. Trump also said the US military could target Iran’s energy and oil infrastructure in response to last week’s attacks on Saudi oil facilities — sparking a rout in currencies, commodities and equities across Asia overnight.

Source:  https://www.reuters.com/markets/currencies/