After plunging to a new low against the dollar in early hours of Monday, the staged a smart recovery due to the intervention by the RBI and dollar sales by banks on behalf of corporate entities, said dealers.
The close on Monday was 82.32 per dollar, nearly the same as it was compared to the previous close of 82.33. The domestic currency weakened to a new low of 82.72 per dollar in opening trades, breaking past the previous intraday low of 82.42.
The dollar has fallen 9.7 per cent in the past year.
The rupee s weak performance in the initial leg of trade was due to data showing strong US labor market conditions. This strengthens the case of the Federal Reserve to raise rates to tame high inflation.
The US dollar index went to 112.80 earlier in the day against 112.06 at 3: 30 pm IST on Friday.
According to the CME FedWatch Tool, 78 per cent of traders in Fed funds futures are now pricing in a 75 bps rate hike by the US central bank in November. The Fed has hiked rates by 300 bps so far in 2022, leading to huge strength in the dollar and weakness in emerging market currencies like the rupee.
The US dollar index has gained 18 per cent in the past 2022, reaching 20 year highs.
The rapid drop of the rupee in early trades on Monday has left traders speculating about whether the domestic currency would go towards the 83 mark. The dollar sales of the RBI boosted the local unit script's turnaround despite thin trading volumes.
The US markets were shut for Columbus Day, and trading volumes were low. The Indian rupee pared opening losses on potential central bank intervention and corporate inflows. HDFC Securities research analyst Dilip Dilip said that recovery in domestic equities and lower crude oil prices also supported the rupee during Monday s session.
According to analysts, the RBI has been intervening through dollar sales on a regular basis and curbing excessive volatility in the rupee. They felt that the central bank was not creating a strong defence around any levels.
The perception is that the RBI has extended firm protection, with the rupee taking quite a while to sustainably weaken past the 80 mark after hitting that level in mid-July. In July, the central bank sold net $19.1 billion in the spot market against net sales of $3.7 billion a month ago, according to RBI data.
It is perhaps not surprising that the rupee fared better than 11 emerging market currencies during July-September.
The domestic currency weakened 2.9 per cent against the dollar during the period.
The rupee has suffered more compared to 14 emerging market currencies so far in the current quarter. The Russian ruble weakened more.
In the month of October-December, the rupee has weakened 1.2 per cent.
The performance, say, is in the middle of the pack over the last one and a half months. There is no sense of any underperformance or outperformance against the dollar. Rahul Bajoria, managing director MD and chief India economist, Barclays said it is broadly in the middle of the pack.
The underperformance has been high during the last 15 days. One might argue that it is a function of oil prices, which have returned closer to $100 per barrel. There could be an element of the RBI taking its hands off a bit on a net basis. He said that this could be a tactical change in intervention behaviour rather than a long-term change in strategy.
The foreign exchange reserves of the RBI were $532.66 billion as of September 30, the lowest since July 2020.