MUMBAI: The Indian rupee fell on Friday but managed to hold above its all-time low on the back of intermittent dollar sales by state-run banks that also helped the currency end the month on a quiet note.
The rupee had rallied to a peak of 87.6250 earlier this month following heavy-handed intervention by the central bank, but has since shed those gains to once again hover close to its record low of 88.80, hit in late-September.
The currency ended Friday’s session slightly lower at 88.7650 and was little changed month-on-month.
India’s benchmark equity indexes, the BSE Sensex and Nifty 50 were both down 0.4% each, tracking weakness in Asian peers, but were set to end October over 4.5% higher – their best monthly gain since March.
While traders expect the Reserve Bank of India to continue keeping a lid on rupee volatility, the broad bias is geared towards depreciation in the absence of clear progress on a U.S.-India trade deal.
A pact between New Delhi and Washington is “very near,” a senior government official said last week.
Elsewhere, signs of cooling U.S.-China trade tensions helped support Asian currencies this week, even as a hawkish tilt in the U.S. Federal Reserve’s commentary boosted the dollar and U.S. bond yields.
“Measures of FX volatility have fallen to fresh year to date lows this week highlighting that current market conditions remain supportive for FX carry trades,” MUFG said in a note.
Carry trades involve borrowing low interest currencies to buy currencies with better yields.
The dollar index was last at 99.54, on course to end the month 1.8% higher, while Asian currencies were mostly stronger. The rupee was down 1% for the week.
Traders will keep a close watch on portfolio flows related to initial public offerings next week that could help the rupee find modest relief.
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