Rupee's six-day run ends as state banks load up on dollars

The rupee snapped a six-session winning streak on Monday, dipping to 93.9275 per dollar from the previous close of 93.9050 as dollar bids from state-run lenders swamped thin trading volumes. Earlier in the session it had climbed to a six-month high of 93.69, capping a rally of more than 1% last week. Indian foreign exchange markets shut on Tuesday for a local holiday.

Traders suspect those state-run bank purchases were made on behalf of the Reserve Bank of India, whose recent measures have eased a stubborn supply-demand imbalance in the currency market. Cheaper crude oil took pressure off the rupee, and foreign investors are drifting back into Indian equities.

Madhavi Arora of Emkay Global expects the RBI to bank any sustained pick-up in inflows into its reserves rather than let the rupee run higher. She pointed to the central bank's hefty net short forward book and India's ongoing current account funding needs as forces likely to cap gains, after the RBI's net short dollar position in the forward market swelled to a record near $240 billion in September — leaving it on the hook for sizeable future dollar commitments.

Overseas, the dollar found fresh legs. US non-farm payrolls rose by 165,000 in October, well past the 65,000 economists expected, driving the 10-year Treasury yield higher. Amit Pabari, managing director at FX advisory firm CR Forex, said the greenback strengthened on that stronger-than-expected jobs report.

The next test lands Tuesday evening, when US retail inflation data is published. A Reuters poll puts October's annual rate at 3.9%. As Pabari noted, a hotter print than expected could firm up bets on another Federal Reserve rate hike and hand the dollar another lift.