Rupee Set To Slip After RBI's Double Strike Fuelled Biggest Rally In Six Months

The Indian rupee is set to open on the back foot on Monday after a rally fuelled by an aggressive forex intervention by the Reserve Bank of India last week, with traders now reassessing how much follow-through the central bank is willing to deliver.

The one-month non-deliverable forward indicated the rupee will open in the 89.50-89.60 range versus the U.S. dollar, after rallying nearly 1% on Friday to settle at 89.27.

Late in Friday's session, heavy dollar sales by the RBI powered the rally, with bankers saying the intervention was aimed at speculators and decisively pushing the currency higher.

The rupee climbed from the 90.10–90.20 range to near 89.30 within minutes, triggering stop-losses and forcing a rapid repositioning.

Bankers said the late-session timing amplified the move, leaving little room for counter-flows. A similar playbook was used on Wednesday, though that intervention came soon after the market opened.

The rupee climbed 1.3% last week, its best showing since June, lifting it marginally into positive territory month-to-date.

"If you look at last week, it does seem to me that the RBI is thinking about timing to get maximum impact on near-term price action," a currency trader at a bank said.

"What the market is watching now is whether there is follow-through if there is (rupee) weakness again, and how much of the underlying demand–supply imbalance the intervention can address."

Meanwhile, Asian cues offered little directional cues for the rupee at the beginning of the week. Most regional currencies were largely flat, while the dollar index was marginally weaker.

Asian cues have played a limited role in the rupee's recent intraday moves, bankers say, with domestic flows and RBI intervention the dominant drivers.

"In the absence of significant flows, USD/INR has a propensity to bounce back after every major intervention," India Forex and Asset Management said, adding that 88.80 is now a key support for the pair.

KEY INDICATORS:

** One-month non-deliverable rupee forward at 89.98; onshore one-month forward premium at 34 paise

** Dollar index down at 98.64

** Brent crude futures up 0.8% at $60.9 per barrel

** Ten-year U.S. note yield at 4.17% ** As per NSDL data, foreign investors bought a net $313.3mln worth of Indian shares on Dec. 18

** NSDL data shows foreign investors bought a net $30.8mln worth of Indian bonds on Dec. 198