Rupee notches longest winning streak in a year, closes at 86.48

The rupee extended its winning streak to a seventh session on Wednesday, its longest in a year, driven by dollar selling from exporters and state-run banks, traders said. The currency closed at 86.48 to the dollar, its highest since Feb. 20.

Exporters rushed to convert dollar receivables after the rupee crossed levels they considered attractive for repatriation, dealers said. The flows built on routine corporate conversions ahead of the financial year-end. State-run banks sold dollars alongside them, a move traders interpreted as the Reserve Bank of India allowing some appreciation after months of intervention to smooth volatility.

The central bank has historically stepped in to cap rupee weakness. This week's price action suggests a shift in tactics. By letting the rupee strengthen on genuine demand rather than absorbing it, the RBI is signaling comfort with the current range, bankers said. The trade-weighted real effective exchange rate remains near its long-term average, leaving room for modest gains without a big hit to competitiveness, they added.

For importers, the winning run opens a window to hedge overdue payables at a better rate. Oil companies, among the largest dollar buyers, have been tracking the rupee closely, a forex dealer at a private bank said. A sustained move below 86.50 could trigger a wave of hedging that would reinforce the gains.

The rupee's rally coincided with a weaker dollar index, which slipped after softer-than-expected U.S. services data, traders said. A softer greenback reduces pressure on emerging-market currencies and gives the RBI more room to manage monetary policy without a tightening bias from the exchange rate channel.

Export-oriented sectors face headwinds from the rupee's rise, analysts said. Infosys and Wipro earn most of their revenue in dollars but report in rupees. For every 1% rupee gain, their operating margins shrink by roughly 30-40 basis points, analysts estimated. The current run has already trimmed margins for the March quarter.

Traders said the next directional cue will come from the U.S. nonfarm payrolls report due Friday. A strong print would revive dollar buying and test the rupee's resolve, they said. If the dollar strengthens, the RBI may step back and let the rupee settle into a new range rather than defending the current one. A state-run bank dealer said the rally's momentum is built on genuine flows, not speculative positioning, which makes it more durable.