Dollar has been losing ground for quite some time now on worrisome US economic recovery outlook and the latest softness in the greenback was triggered by the US President Trump comments over delay in US elections, though market participants have advised not to take his this call seriously.
In the past one month, dollar has slid by a huge 4% and during the same time Indian currency has risen just 1%. This is even as other emerging market currencies are outperforming the Indian rupee. And this is not the story currently but has been experienced for many years.
It is to be noted that ever since the announcement of fund infusion to the tune of $15 billion into Jio Platforms, rupee had been the outlier, outperforming other currencies since June 26 and until July 6, 2020
So, what is pulling back the gains in Indian rupee, here is given some background on it:
RBI's dollar buying spree is one reason:
RBI is somewhat being responsible in keeping under check rupee's forward march which though somewhat gained strength on the back of record flows into RIL's Jio Platforms. On July 7, 2020, it was reported that RBI will buy a billion dollars.
"There was some incipient sign of intervention through the forward market on Monday (July 6) given the ample rupee liquidity in the banking system," said B Prasanna, Head-Global Markets & Proprietary Trading Group, ICICI Bank. "There is a tailwind also from regional peers amidst a surge in Chinese equities and the yuan value."
And the move is keeping rupee's liquidity into the system under check, which is seeing a surplus of Rs. 3.35 trillion."The RBI is likely to extend its dollar purchases unless it (forex reserves) surpasses the external debt," said Anidya Banerjee, a currency analyst at Kotak Securities. "The rupee has been made weaker by the relentless intervention from the RBI, which may be following the Bimal Jalan committee report."
As per the latest RBI data, forex reserves are at a record high of $517 billion, while the country's total external debt is at $558.5 billion.
On Friday, rupee ended a tad higher in comparison to the earlier closing of 74.815 per US Dollar.
Outlook for rupee in the near term
RBI's persistent intervention to contain the surge in the local currency may keep the rupee in a range of Rs 74.30-75.10 in the near term, traders said.