The Indian rupee closed marginally higher on Thursday aided by a pullback in U.S. Treasury yields but dollar demand from importers, including local oil companies, curbed gains.
The rupee closed at 83.2425 against the U.S. dollar, compared with its close at 83.28 in the previous session.
The local unit fell to its lifetime low of 83.2950 on Wednesday but recovered to open at 83.2250 on Thursday as U.S. Treasury yields fell and the dollar softened after the Federal Reserve left rates unchanged.
The dollar index was last quoted lower at 106.18 and the 10-year U.S. Treasury yield declined to 4.71% in Asia.
But buoyant local dollar demand ate into the rupee’s gains through the spot session, even as most of its Asian peers rallied. “Oil companies were buying dollars through much of the session,” a foreign exchange trader at a state-run bank said.
While the rupee had punctured through its previous lifetime low of 83.29 in the previous session, it’s unlikely that the Reserve Bank of India will let the unit slip much further, the trader added.
A wider trade deficit, elevated oil and gold prices and equity outflows are all contributing to strong local dollar demand, said Sajal Gupta, head of forex and commodities at Nuvama Wealth Management’s institutional desk.
Despite the pressures, the RBI is likely to keep defending the unit, keeping it near its current levels, Gupta added.
Hedging by importers and exporters on the dollar/rupee pair fell in October compared to the previous month, according to CCIL data. The hedging reduced as volatility expectations declined to multi-year lows in the wake of RBI’s interventions to defend the rupee.
Investors now await U.S. initial jobless claims due later in the day for cues on the health of the labour market in the world’s largest economy.
