The rupee ended at 86.xxxx, down from its close at 86.54 in the previous session. The currency hovered between 86.57-86.6250 band on the day.
The dollar index was just of the 108 mark, up slightly on Thursday. Trading in Asia remained thin, with many regional markets closed for the Lunar New Year holidays.
State-run banks were spotted offering dollars near 86.60 levels, which helped cap the rupee’s losses, traders said.
While the Reserve Bank of India (RBI) was likely active near that level on Wednesday and Thursday, the 86.60-86.65 range is also a “technical resistance zone (for USD/INR),” a trader at a private bank said.
The rupee has declined slightly more than 1% so far in January and is set to underperform its regional peers amid persistent portfolio outflows, expectations of policy easing by the RBI and uncertainty about U.S. President Donald Trump’s trade tariffs. Foreign investors have withdrawn over $8.5 billion from local stocks and equities this month. Interest rate swap markets have priced in a rate cut at both the RBI’s February and April policy meetings. Meanwhile, expectations that the Federal Reserve is likely to keep rates unchanged at least until June have supported the dollar and U.S. bond yields.
“With other G10 central banks still cutting rates further at the start of this year, the widening policy divergence contributes to a stronger U.S. dollar alongside the looming risk of U.S. tariffs hikes at the start of Trump’s second term,” MUFG Bank said in a note.
The RBI will conduct a $5 billion 6-month dollar/rupee buy-sell swap on Friday, which is expected to see strong demand from lenders and corporate treasuries, according to bankers.
