The rupee recorded its highest single-day gain in more than two years, since March 2023, appreciating 0.75 percent, tracking the weakening dollar and a drop in crude oil prices, dealers said.
On Thursday, the rupee was trading at 86.70 per dollar; on Friday, it was trading at 86.05 per dollar. It closed at 85.23 per dollar last week.
However, the local currency had its worst week in almost 27 months, since December 2022, due to tensions from the global trade war. Concerns about growth in the largest economy in the world caused the dollar to lose its shine, but the rupee has gained some ground against it in the last two sessions.
The dollar has suffered even though the US has suspended its "reciprocal" tariffs on the majority of nations, with China being the exception. It is still losing ground to the euro and popular safe-haven currencies such as the Japanese yen and Swiss franc.
The rupee has lost 0.51 percent of its value this year. In April alone, the domestic currency fell 0.67 percent.
"The rupee was tracking the dollar index; all Asian currencies were up," said the treasury head of a state-owned bank. "There was also natural buying demand for the rupee," the economist explained.
Until last week, the rupee was trading higher against the dollar. It had risen above 85 per dollar on the back of foreign inflows.
Growing worries that recent changes in US trade policy could send the nation into a recession and shake investor confidence in US assets caused the dollar index to drop 0.7% to 99.75, its lowest level in almost three years. The index compares the value of the US dollar to a basket of six major currencies.
Meanwhile, one-year implied forward premiums fell 8 basis points to 2.25%.
"The rupee is expected to trade between 85.50 and 86.50 per dollar, with an appreciation bias," said a dealer at a state-owned bank. "In the forwards market, RBI will most likely accept the contracts maturing this month, because the amount of flows we are seeing will take care of the maturity amount," according to him.
According to the RBI's latest data, the central bank's outstanding net short position increased from $67.9 billion in December to $77.5 billion at the end of January. Of the $77 billion net short dollar position, $20.95 billion was in one-month contracts, $25.97 billion was in one-to-three-month tenures (some of which were scheduled to mature in March), and the remaining $30.60 billion was distributed among six-month and one-year terms.
