By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee hit a two-month high on Thursday, aided by likely portfolio inflows and a rally in the Chinese yuan after the Federal Reserve delivered a 50 basis points interest rate cut.
The rupee ended at 83.68 against the U.S. dollar, up 0.1% from its previous close of 83.75. The currency scaled as high as 83.57 in the session, its strongest since July 18.
Asian currencies gained, with the offshore Chinese yuan, a closely watched peer of the rupee, rising 0.4% to 7.06, its strongest level since May 2023.
The Fed’s larger-than-usual rate reduction propelled global stocks higher as well. India’s benchmark equity indices Sensex and Nifty 50 hit record highs before ending higher by about 0.3% and 0.1%, respectively.
Dollar sales from large foreign banks, likely on behalf of custodial clients aided the rupee, a trader at a large private bank said.
Price-action signals that the Reserve Bank of India “is ok with rupee appreciation,” but will have to see how much of a gain they allow before stepping in, the trader added.
Traders expect the RBI to continue absorbing dollar inflows to bolster its foreign exchange reserves while also ensuring that India’s exports remain price-competitive.
The dollar index was choppy, falling to its year-to-date low immediately after the Fed decision on Wednesday but rebounding quickly, only to head lower again in Asia trading. It was last quoted at 100.5, down 0.4%.
“At this stage, the risk-reward remains tilted in favour of dollar strength rather than weakness and the outlook is balanced,” Charu Chanana, head of FX strategy at Saxo, said.
Meanwhile, dollar-rupee forward premiums rose with the 1-year implied yield touching 2.33%, its highest level since April last year.
(Reporting by Jaspreet Kalra; Editing by Varun H K)
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