On Monday, the Indian rupee hit its lowest closing level on record but managed to avoid steeper losses, thanks to what appears to be intervention by the Reserve Bank of India (RBI). The currency closed at 84.0725 against the U.S. dollar, slightly down from the previous day’s close of 84.0650.
Traders noted that foreign banks were actively buying dollars, likely on behalf of custodial clients. However, “consistent” dollar offers from state-run banks helped mitigate the rupee’s decline, according to a trader at a private bank.
This month, foreign investors have withdrawn over $9 billion from Indian equities, exceeding the previous record of $8.35 billion set in March 2020. Benchmark Indian stock indices closed slightly lower, reflecting a decline of around 4% in October.
Asian currencies generally fell between 0.1% and nearly 1%, while the dollar index rose to 103.7. The dollar index has increased by nearly 3% this month, driven by expectations of smaller rate cuts from the Federal Reserve and the growing possibility of a Donald Trump victory in the upcoming U.S. presidential election.
“FX markets appear to be positioning for a Trump win in next month’s U.S. presidential election,” ING Bank noted in a report. Investors are also waiting for comments from Federal Reserve policymakers later in the day for insights on future policy rates.
Meanwhile, dollar-rupee forward premiums increased, with the 1-year implied yield rising by 5 basis points to 2.24%, following remarks from RBI Governor Shaktikanta Das that led traders to reconsider the chances of a rate cut in December.
