Rupee Stages Recovery After Hitting Record Low
The Indian rupee made a strong comeback on Monday, appreciating against the U.S. dollar after the Reserve Bank of India (RBI) was suspected to have intervened in the currency markets. This action helped the national currency rebound from the all-time low of 89.49 it had touched in the previous trading session on Friday.
As of 10:20 a.m. IST, the rupee was trading at 83.1625 against the dollar, marking a gain of 0.3% for the day. Market experts pointed to the central bank's strategic moves as the primary catalyst for this recovery.
Central Bank Steps In as Traders Were Caught Off-Guard
According to traders, the RBI likely stepped in to support the rupee even before the local spot market opened for trading. This intervention was crucial in pulling the currency away from its historic low. The sudden depreciation on Friday had taken market participants by surprise.
The trigger for the rupee's sharp decline was a combination of factors, including a decisive break above a key level that the RBI had been defending. For nearly two months, the central bank had successfully capped the rupee's weakness at the 88.80 level. However, on Friday, the RBI pulled back from defending this level, which, combined with portfolio outflows and lingering uncertainty over a U.S.-India trade deal, sparked a significant slide.
Volatility Jumps and Bond Markets Feel the Heat
The currency's instability immediately translated into a surge in near-term volatility expectations. The dollar-rupee pair's 1-month implied volatility rose above 4%, a level not seen since early September.
Amit Pabari, Managing Director at CR Forex, provided insight into the new trading range, stating, "With last week’s decisive break above 83, the pair now looks set to establish itself within a fresh 82.90–84.20 band as the market searches for stability."
The ripple effects of the rupee's slide were also felt in the sovereign bond market on Friday. Traders believe that the currency's movements will continue to be a focal point for bond yields. Following a spike to a three-week high, the yield on the 10-year sovereign bond was slightly lower at 6.5578%.
In global markets, the dollar index held steady at 100.2. Meanwhile, most Asian currencies were trading weaker, showing a muted reaction to increasing bets on a U.S. interest rate cut next month. The probability of a 25 basis point cut in December has climbed to nearly 70%, a significant increase from around 45% just a week earlier, according to the CME's FedWatch tool.
