Concerns about a U.S. economic slowdown and the unwinding of carry trades that used the Chinese yuan to fund long bets on the rupee have pressured the local currency this week.
But the Reserve Bank of India’s (RBI) interventions across the non-deliverable forwards (NDF), spot over-the-counter (OTC) and futures market have kept volatility in check, traders said.
State-run banks intermittently sold dollars during Tuesday’s session, likely on behalf of the RBI, which helped cap the rupee’s weakness, a foreign exchange trader at a private bank said.
The dollar index was up 0.2% at 103.1, while most Asian currencies weakened, led by the Malaysian ringgit’s over 1% drop.
Meanwhile, dollar-rupee forward premiums eased slightly but managed to hold on to much of their gains from a climb to a 14-month high on Monday.
A rise in corporate hedging demand, arbitrage between onshore and NDFs, and a broad decline in U.S. yields have helped lift far forward premiums in recent sessions, traders said.
Treasury yields pared their losses after economic data and remarks from Fed officials helped soothe concerns about a U.S. slowdown. The 10-year U.S. bond yield was last up 6 basis points at 3.84%.
“Barring a U.S. CPI surprise next week, the USD rate appeal appears compromised and we expect a softer dollar against pro-cyclical FX after the dust has settled,” ING Bank said in a note.
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