The Indian rupee is poised to open lower on Monday, December 22, following a dramatic surge late last week that was driven by aggressive foreign exchange market intervention from the Reserve Bank of India (RBI). The currency's sharpest rally in six months has left traders questioning how much further support the central bank is prepared to offer.
RBI's Strategic Strikes Fuel Volatility
Market indicators suggest the rupee will begin trading in the range of 89.50 to 89.60 against the U.S. dollar. This follows a powerful rally on Friday, December 19, where the rupee appreciated by nearly 1% to close at 89.27. The surge was ignited by heavy dollar sales executed by the RBI towards the end of the trading session.
Bankers familiar with the moves stated that the intervention was specifically targeted at currency speculators and was effective in decisively pushing the rupee higher. Within minutes, the domestic currency shot up from the 90.10–90.20 range to near 89.30. This rapid movement triggered a cascade of stop-loss orders and forced market participants into a hurried repositioning of their portfolios.
The timing of Friday's action, late in the session, significantly amplified its impact, leaving minimal opportunity for counter-flows to enter the market. This mirrored a similar strategy employed by the RBI just days earlier on Wednesday, December 17, though that intervention occurred shortly after the market opened.
Traders Assess RBI's Follow-Through Intent
Over the course of last week, the rupee gained an impressive 1.3%, marking its best weekly performance since June. This uplift pushed the currency marginally into positive territory for the month to date. A currency trader at a leading bank noted that the RBI's actions indicate a strategic focus on timing to maximize the impact on short-term price movements.
The key question now occupying the minds of traders and analysts is whether the central bank will provide follow-up support if the rupee faces renewed weakness. Market participants are also evaluating how effectively these interventions can address the underlying demand-supply imbalances in the forex market.
Meanwhile, regional cues from other Asian currencies offered little directional guidance at the start of the new week. Most regional peers were trading largely flat, while the dollar index itself was marginally weaker. Bankers have observed that Asian market movements have played a limited role in the rupee's intraday volatility recently, with domestic capital flows and RBI actions being the dominant drivers.
Key Levels and Market Indicators
Financial firm India Forex and Asset Management highlighted that in the absence of significant foreign fund flows, the USD/INR pair has a tendency to bounce back after every major intervention. The firm identified 88.80 as a crucial support level for the currency pair moving forward.
Other important market indicators as of Monday include:
- The one-month non-deliverable rupee forward was quoted at 89.98, with the onshore one-month forward premium at 34 paise.
- The dollar index was down at 98.64.
- Brent crude futures were up 0.8% at $60.9 per barrel.
- The ten-year U.S. Treasury note yield stood at 4.17%.
In terms of foreign investment flows, data from the National Securities Depository Limited (NSDL) showed that foreign institutional investors purchased a net $313.3 million worth of Indian equities on December 18. On December 19, they bought a net $30.8 million worth of Indian bonds.
