The Indian rupee registered its best trading session in more than six weeks on Monday, as likely intervention from the central bank added to the impact of a plunge in oil prices and triggered stop-losses for long dollar positions.
The rupee opened at 96.1475 against the U.S. dollar and climbed to an intraday high of 95.7950, having settled at 96.5625 in the previous session.
It ended 0.7% higher on Monday, biggest single session gain since June 12.
The currency, already buoyed by falling oil prices, saw its rally pick up pace after the dollar/rupee pair slipped below the 96.14-96.16 range and plunged to around 95.80 within minutes.
Traders said several factors drove the rally: oil prices extended their slide following the U.S.-Iran pause in attacks, the rupee had broken through near-term resistance levels, while the Reserve Bank of India's dollar selling further boosted momentum.
"The recent rise in USD/INR was primarily driven by higher crude oil prices. With geopolitical concerns easing today, the rupee is expected to see a meaningful appreciation on a mean-reversion basis, especially relative to global and Asian currencies," said Dhaval Shah, founder and managing director, De-Risk Forex Consultancy.
"Additionally, inflows through the FCNR(B) scheme and continued foreign investment in domestic equity markets are providing further support to the rupee."
The RBI's measures to attract foreign currency inflows have drawn in nearly $32 billion, RBI Governor Sanjay Malhotra told The Hindu BusinessLine in an interview published on Monday.
Alongside dollar sales in the spot market, the RBI also conducted buy/sell swaps, which weighed on forward premiums, per traders. The one-year implied interest rate dropped about 10 basis points to 2.82%.
Estimates of Monday's intervention ranged from roughly $1.5 billion to $3 billion, according to three traders, with bankers saying the central bank was active in both the spot and non-deliverable forward markets.
The RBI has intervened to the tune of around $1.5 billion in the spot market, said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors.
Meanwhile, the decline in oil prices added to the rupee's momentum, with Brent crude falling nearly 10% during Asian trading to slip below $88 per barrel.
