Rupee Rises 67 Paise To 2-Month High Against Dollar; FCNR-B Inflows, RBI Moves In Focus

The rupee jumped 67 paise against the US dollar on Thursday, September 3, marking its biggest single-day gain since June and taking the currency to a two-month high. The rupee opened at 94.30 against the dollar, compared with Wednesday's close of 94.97.

The move came a day after the Reserve Bank of India (RBI) reported more than $127 billion in FCNR(B) inflows through its special forex swap facility. The figure was well above market expectations and has strengthened the outlook for India's foreign exchange liquidity.

As reported by Moneycontrol, the rupee's gains are also being supported by a softer dollar, record foreign exchange reserves and the large FCNR(B) inflows recorded before the August 31 deadline.

Including inflows through external commercial borrowings and overseas foreign currency borrowings, the total mobilisation under the facility stood at around $136 billion.

Why Is The Rupee Rising Today?

The FCNR(B) inflow figure came in well above market expectations. A currency trader quoted by Reuters said the market had expected around $100 billion, while some estimates had put the figure at about $90 billion.

The stronger inflows have improved the country's foreign exchange position and given the RBI more room to manage movements in the rupee.

Traders also pointed to recent RBI intervention in the currency market. The central bank has stepped up dollar sales, which has helped support the rupee.

Kunal Sodhani, head of treasury at Shinhan Bank, said the RBI now has more flexibility to deal with both sharp depreciation and excessive appreciation in the rupee. He sees the currency trading in the Rs 94.10-Rs 95.50 range, with a sustained break below Rs 94.10 potentially opening the way towards Rs 93.50.

The rupee is also getting support from Asian currencies and a weaker dollar. The dollar index has fallen below 99.50, with the Japanese yen's recent strength adding to the pressure on the US currency.

Rupee Outlook: Rs 94 Key Support

The rupee has moved below the 94.60-94.70 range that had acted as an important zone, according to Moneycontrol.

Anindya Banerjee, Head of Research – Currency, Commodities and Interest Rates at Kotak Neo said the rupee is being supported by several factors, including India's record foreign exchange reserves of around $729 billion, FCNR(B) deposits that crossed $100 billion by the August 31 deadline and a relatively small current account deficit of $4.2 billion, or 0.5% of GDP, in the first quarter.

With the 94.60-94.70 zone now behind it, Rs 94 is the next major support for the rupee, according to Banerjee.

However, the currency still faces some risks. Brent crude was trading near $95 a barrel as tensions between the US and Iran remained elevated. Higher oil prices can increase India's import bill and put pressure on the rupee.

Rising global bond yields could also limit further gains in the currency, traders said.

For now, the market will watch whether the rupee can hold above the Rs 94 level and whether the RBI continues to intervene in the forex market as needed.

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