Rupee Gains On Strong Dollar Inflows, Bucking The Weakening Trend In Asian Peers

The rupee climbed against the dollar on Wednesday, snapping a three-session losing streak and bucking a broader global sell-off in risk assets, driven by robust capital inflows and and dollar sales by exporters.

Bloomberg showed the rupee was last changing hands at 79.8150 against the greenback, compared to its previous session close of 79.8650.

PTI quoted the rupee provisonally at 79.81 against the US dollar, up 2 paise from Tuesday's ending figure.

Reuters reported that the Indian currency was trading at 79.77 per U.S. dollar, up from 79.8625 in the previous session. Since the beginning of last week, the local currency is down 0.15 per cent.

On the other hand, the offshore Chinese yuan has decreased by about 2 per cent, the Korean won has dropped by 3 per cent, and the Indonesian rupiah has decreased by 1.2 per cent. 

The Chinese central bank interest rate drop and concerns that the Federal Reserve will maintain its aggressive posture for an extended period of time have hurt Asian currencies. Since last Monday, the dollar index has increased by roughly 3 per cent.

The rupee's outperformance can be attributed to foreign equity portfolio inflows and expectations that the Reserve Bank of India will protect the 80 level, Anindya Banerjee, Head of Research for FX and Interest Rates at Kotak Securities, told Reuters.

Foreign inflows into Indian equities this month have reached over $5 billion. This compares to the $28 billion of outflows seen in the first half of the year.

Domestic equity benchmarks ended Wednesday with marginal gains and extended their fag-end winning streak trend to the second straight day.

Foreign Institutional Investors (FIIs) were net buyers in the Indian capital market on Tuesday as they purchased shares worth ₹ 563.00 crore, according to the latest exchange data.

"The Reserve Bank of India's tolerance for volatility in the rupee has also helped," Garima Kapoor, economist and senior vice president at Elara Capital, told Reuters.

The RBI has been reducing reserves in the meanwhile to curb excessive rupee volatility. The level of India's foreign exchange reserves is the lowest it has been since 2020 in November.

India's forex reserves slumped by over $2 billion in the week ending August 12, as the RBI intervened to shore up the rupee.

Reuters quoting a spot and forwards trader at a Mumbai-based private sector bank reported that persistent dollar offers from exporters to lock in a higher forward rate amid a fairly stable rupee is keeping the dollar from climbing above 80.

"Importers are using the record high (on dollar) of 80.0650 as a stop loss and waiting," the trader said.