Indian rupee boxed in, RBI takes sting out of heavy dollar demand

Business Recorder reported that the Indian rupee may start Thursday roughly unchanged or a touch softer, and is likely to trade within a tight band. Persistent purchases of dollars by hedgers continue to weigh on the currency, while the central bank keeps its losses in check. Traders see the rupee opening between 95.34 and 95.38 per dollar, having closed at 95.33 on Wednesday.

On Wednesday the currency barely moved for most of the day, held in a 3 to 4 paise band as state-run banks sold dollars, apparently on the Reserve Bank of India's behalf. A late rally, driven by more dollar sales from the central bank, lifted the rupee about 0.1%. This week the rupee has moved within a band under 30 paise, while short-term volatility has fallen sharply.

A bank trader said the RBI's almost constant presence is shrinking the impact of oil and wider dollar moves, which may be its intention. The same trader added that the central bank clearly wants the dollar to fall against the rupee, but heavy dollar demand persists at current levels, given oil prices. Brent crude moved past $90 on Wednesday before easing to $88 in Asia, while the chance of a Fed rate increase next month fell to 40% from 54% a week earlier, according to CME Group's FedWatch.