Indian Rupee Snaps Six-Day Winning Streak Following State Bank Dollar Bids

The Indian rupee snapped a six-session winning run on Monday amid thin trading volumes, as dollar bids from state-run lenders outweighed recent positive momentum.

Indian foreign exchange markets will be closed on Tuesday for a local holiday.

Earlier, the rupee hit a six-month high of 93.69 per dollar, extending a rally of more than 1 percent from the previous week, before closing slightly lower at 93.9275 compared to its previous close of 93.9050.

Traders indicated that the dollar purchases by state-run banks could be on behalf of the central bank, whose recent measures have helped address the persistent supply-demand imbalance in the foreign exchange market.

Meanwhile, a decline in crude oil prices alleviated pressure on the Indian currency, aided by foreign investors returning to equities.

Madhavi Arora of Emkay Global expects the Reserve Bank of India to utilize any sustained improvement in capital inflows to rebuild its foreign exchange buffers rather than permit a sharp appreciation of the rupee. According to Arora, the central bank's sizeable net short forward position and India's continuing current account funding needs are likely to cap the currency's upside.

The RBI's net short dollar position in the forward market reached an all-time high of nearly $240 billion in September, leaving the central bank with substantial future dollar commitments.

External factors also influenced currency movements. Amit Pabari, managing director at FX advisory firm CR Forex, noted that the US dollar has strengthened following a stronger-than-expected October jobs report.

US non-farm payrolls increased by 165,000 in October against market expectations of 65,000, pushing the US 10-year yield higher. Additionally, a Reuters poll indicated that US retail inflation likely stood at 3.9 percent year-on-year in October, with data due on Tuesday evening.

Pabari added that a higher-than-expected inflation reading could strengthen expectations of another Federal Reserve rate hike and provide fresh support to the dollar.

"The recent movement in the Indian rupee highlights the delicate balance between domestic market interventions and global macroeconomic pressures. With the RBI focused on managing foreign exchange buffers and handling substantial forward positions, businesses dealing in cross-border trade must closely monitor global central bank policies, particularly US employment and inflation data, which continue to drive dollar strength and currency fluctuations." — Dr. Shishir Gupta, Founder & CEO, StartupLanes