By Jaspreet Kalra
MUMBAI (Reuters) -The Indian rupee closed modestly higher on Wednesday as likely central bank intervention supported the currency in face of month-end dollar bids, while traders turned their focus to the upcoming U.S. Federal Reserve policy decision.
The rupee had declined to 88.3450 early in the session, but traders said that the Reserve Bank of India stepped in to shore up the local currency. It closed at 88.1950, up slightly from its previous close.
Asian currencies were mixed on the day, with the offshore Chinese yuan perched near a one-month peak on growing expectations of a U.S.-China trade deal.
Indian officials, too, have pointed to ongoing negotiations with Washington on a bilateral trade agreement. A senior central bank official on Wednesday said that the rupee’s exchange rate is market determined and hence is not a policy tool to fight tariffs.
Weakness in a currency can help dent the impact of trade levies by making exports cheaper.
The rupee has declined 3% so far this year, and hit a record low of 88.80 last month.
Meanwhile, the focus is on a widely anticipated rate cut by the Fed later in the day, with traders awaiting cues from Chair Jerome Powell’s commentary and any changes to the central bank’s quantitative tightening policy.
“Given the lack of jobs data we certainly expect Powell to attempt to remain balanced and would not want to shift market expectations at this juncture only for updated jobs data to contradict that shift,” MUFG said in a note.
The dollar index was last at 98.8, up 0.2% on Wednesday.
Dollar-rupee far forward premiums were modestly lower, with the 1-year implied yield down 2 basis points at 2.24%.
Buy/sell swaps conducted by state-run banks over recent sessions, coupled with bias towards a dovish Fed is likely to keep forward premiums in check in the near term, a trader at a Mumbai-based bank said.
(Reporting by Jaspreet Kalra; Editing by Eileen Soreng and Sonia Cheema)
