Rupee extends rally as RBI intervention, oil slump trigger stop losses

[MUMBAI] The Indian rupee extended its advance on Monday (Jul 27), hitting a two-week high, with central bank intervention and a slump in oil prices triggering a round of stop-loss dollar selling.

The rupee climbed to 95.7950 per US dollar, having settled at 96.5625 in the previous session.

The currency, already buoyed by falling oil prices, saw its rally pick up pace after the dollar/rupee pair slipped below the 96.14-96.16 range and plunged to 95.80 within minutes.

Traders said several factors drove the rally. Oil prices extended their slide following the US-Iran pause in hostilities, the rupee had broken through near-term resistance levels, and Reserve Bank of India intervention appeared to add momentum.

This prompted an unwinding of long dollar/rupee positions, triggering a wave of stop-loss dollar selling, the traders said.

Alongside dollar sales in the spot market, the RBI conducted buy/sell swaps, which weighed on forward premiums, per traders. The one-year implied interest rate dropped about 10 basis points to 2.82 per cent. Estimates of Monday’s intervention ranged from roughly US$1.5 billion to US$3 billion, three traders said, with bankers saying the central bank was active in both the spot and non-deliverable forward markets.

Traders said the RBI likely deployed a similar strategy on Friday, selling dollars in the spot market while conducting buy/sell swaps in forwards when the rupee was at risk of sliding to an all-time low.

The decline in oil prices added to the rupee’s momentum, with Brent crude sliding during Asian trading and slipping below US$90 a barrel.

The US ambassador to the United Nations said Washington had paused attacks to allow more time for diplomacy.

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Indian central bank likely steps in to avert rupee record low as oil surges, traders say

India's central bank sold US$6 billion in May to defend oil-hit rupee

Indian rupee’s return to near-record lows reflects RBI debate on intervention

Sentiment towards the rupee was aided by recent RBI measures aimed at attracting foreign currency inflows and boosting the central bank’s ability to counter depreciation pressures.

Dollar-mobilisation schemes announced by the RBI in June have attracted nearly US$32 billion, RBI head Sanjay Malhotra told The Hindu BusinessLine in an interview published on Monday. REUTERS