The rupee ended the session at 86.4425 against the U.S. dollar, slightly higher than Tuesday’s close at 86.57. Earlier in the day, the currency hit 86.4250, a peak since January 27.
While the rupee has been on a winning run this week, traders have also pointed to likely passive absorption of dollar inflows by the central bank, probably to replenish the forex reserves expended on supporting the rupee over the past few months.
Inflows related to inter-company borrowings and repatriation of corporate profits are usual in March, the last month of the financial year. Such inflows have aided the rupee over recent trading sessions.
The inflows also likely helped the rupee weather a pickup in dollar strength on Wednesday. The greenback was up about 0.3% against major peers, while Asian currencies were mostly lower with the Indonesian rupiah down 0.3% and leading losses.
On the day, the rupee was also supported by likely cutting of short bets once the currency rose above 86.50, a trader at a state-run bank said. The Fed is widely expected to make no changes to its policy rate later in the day but the focus will be on the central bank’s guidance and updated economic and policy rate forecasts. “Markets will be sensitive to growth and inflation forecasts too, but if we are right with our dot plot call and Fed Chair Jay Powell retains a cautious tone on easing, the dollar should be able to rebound,” ING Bank said in a note.
