Contraction in the December trade gap also aided the rupee, traders said.
The rupee opened at 86.50/$1 on Wednesday, stronger than the previous day’s close of 86.63/$. The rupee gained on Wednesday, a day after it declined to all-time lows of 86.65/$1, LSEG data showed.
The dollar index – a gauge for the American currency versus six major global units – stood at 109.22. Despite the rebound Wednesday, the rupee has declined 3% since Donald Trump was declared the winner in the US presidential polls on November 4.
Intervention from the Reserve Bank of India (RBI) helped the rupee strengthen, although the central bank did not absorb dollars to cap its appreciation, traders said. Traders also mentioned that the RBI conducted another round of buy-sell swaps of $2-3 billion to ease domestic liquidity.
Such a swap was also conducted on Friday. “Such corrections are expected to happen periodically in a volatile market. Importers are buying on every dip (rupee strength) and hedging at least their near-term positions because volatility is expected to continue,” said Ritesh Bhansali, vice president at Mecklai Financial Services. India’s trade deficit decreased to $21.94 billion in December, compared with $32.84 billion in November, driven by an increase in exports and a decline in imports.
Traders are now looking at the US CPI data expected on Wednesday after market hours. “If CPI data is unexpectedly low, it could convince market participants that the US is still on a path to rate cuts,” said a trader with a private bank.
