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The Indian rupee experienced a dramatic surge on Tuesday, strengthening by 64 paisa against the US dollar – its most significant single-day gain in nearly two years. This remarkable appreciation, closing at 83.83 rupees per dollar, was primarily attributed to decisive intervention by the Reserve Bank of India (RBI). The move caught market participants off guard, as the rupee had recently reached an all-time low of 87.95 per dollar on Monday. This sudden shift triggered a wave of stop-loss orders, leading to the unwinding of substantial long dollar positions held by speculators who had anticipated further rupee depreciation. Analysts at HDFC Securities highlighted that these stop losses fueled speculative dollar selling, significantly contributing to the rupee's dramatic recovery. The scale of RBI intervention is estimated to be around $7 billion, a figure that underscores the central bank's commitment to managing currency volatility.
The impact of the RBI's actions was widespread. While the rupee experienced a remarkable 0.75% appreciation, becoming the best-performing currency of the day, other currencies like the Thai baht fared significantly worse, depreciating by 0.49%. This sharp contrast emphasizes the targeted nature of the RBI's intervention and its immediate impact on the forex market. However, the benefits weren't universally felt. A trader from a public sector bank, speaking anonymously, noted that some exporters, particularly those with unhedged positions, suffered substantial losses due to the unexpected surge in the rupee's value. This underscores the inherent risks associated with unhedged exposure in volatile currency markets. The swift recovery prompted debate about the future trajectory of the rupee. While the RBI governor, Sanjay Malhotra, recently reiterated that market forces determine the rupee's value and the central bank is not overly concerned about daily fluctuations, market participants remain largely bearish.
The prevailing sentiment points towards continued depreciation bias for the rupee. Several factors contribute to this outlook. Persistent selling by foreign portfolio investors (FPIs) continues to exert downward pressure on the currency. The potential for a trade war adds further uncertainty, while the RBI's policy easing measures also play a role in influencing the rupee's value. Kotak Mahindra Bank, in a note issued on Tuesday, observed that the recent accentuated moves in the USD/INR pair have brought the currency to near fair value. However, they emphasized that given the persistent global uncertainties, pressure on the Indian rupee is expected to continue in the near term. The contrasting perspectives – the RBI's assertion of market-driven valuation and the market's expectation of continued depreciation – highlight the complexities and unpredictable nature of the forex market, particularly in the face of global economic headwinds and geopolitical uncertainties. The significant one-day gain, therefore, might be viewed as a temporary reprieve rather than a fundamental shift in the long-term trend.
The events of Tuesday offer a compelling case study in the interplay between central bank intervention, market speculation, and the forces that shape currency values. The RBI's actions effectively countered the prevailing bearish sentiment, at least temporarily. However, the underlying factors contributing to the rupee's weakness remain largely unresolved. The success of this intervention in sustainably bolstering the rupee remains to be seen, as the inherent vulnerabilities stemming from global economic uncertainties and FPI flows continue to pose a significant challenge. The significant short-term gains might have masked deeper structural issues that continue to exert pressure on the Indian currency. The future direction of the rupee will likely depend on a complex interplay of domestic and global factors, making it a market to watch closely in the coming weeks and months. The extent to which the RBI will continue its interventions to mitigate the risks of further depreciation remains an open question, adding another layer of uncertainty to this dynamic market.
Source: Indian rupee makes biggest single day gain in almost 2 years