State-run bank dollar sales blunted demand from $2.7B futures expiry, lifting the rupee to 95.72. The Fed decision and oil price swings remain in focus. MUFG expects a hawkish hold.
Alpha Score of 57 reflects moderate overall profile with strong momentum, moderate value, weak quality, weak sentiment.
The Indian rupee rose Wednesday, gaining 0.14% to 95.72 per U.S. dollar, its strongest level in two weeks. Dollar sales from a mid-sized state-run lender pulled the currency higher. Demand for dollars at the daily reference rate exerted pressure, traders said.
The reference rate, a benchmark used to settle contracts, often attracts concentrated dollar buying or selling. Wednesday's demand was at least partially linked to the maturity of about $2.7 billion worth of exchange-traded futures, according to National Stock Exchange of India data. The $2.7 billion maturity is one of the largest in recent months, reflecting increased hedging activity ahead of the Fed decision, traders said.
India's central bank has been "intervening in the futures market over the last few sessions, which has reflected in the buildup in open interest," a trader at a private bank said. Open interest rose by about $700 million over the last week. The rise signals the central bank's focus on the futures market to manage the rupee's pace, the trader said.
Brent crude oil futures climbed nearly 4% after dropping sharply over the prior three sessions. Markets had cheered hopes of talks between the U.S. and Iran to end their war, which began in late February. Those hopes faded after joint U.S.-Saudi strikes in Iraq and the interception of Iran's ballistic missiles aimed at U.S. forces in the Middle East. The oil price rebound, if sustained, could add to India's import bill and pressure the rupee, traders said.
Later Wednesday, the Federal Reserve announces its monetary policy decision. Markets price in about a 30% chance of a rate hike.
"Our base case is for a hawkish hold, with the Fed likely to keep rates unchanged and emphasize that inflation risks remain high," MUFG said in a note. "This could keep U.S. yields and the dollar supported, in turn weighing on Asia FX broadly." MUFG, which has an Alpha Score of 57/100 from AlphaScala, labeled Moderate, expects a hawkish hold to support the dollar.
The Fed decision will test the rupee's gains, traders said. A hawkish stance could reverse the move. A dovish hold could extend the rally.
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