OCBC’s Christopher Wong notes that strong foreign-currency inflows linked to the RBI’s special measures have bolstered the Indian Rupee (INR) and strengthened the central bank’s FX buffer. However, with the FCNR(B) window now closed, the exceptional near-term dollar supply is expected to fade, potentially leading to more two-way RBI management. Wong adds that USD/INR remains under bearish pressure, though oversold conditions may slow the pace of decline, with support at 94.30 and 94.15.

RBI-backed inflows support INR, but near-term dollar supply may fade

“USD/INR gapped down in the open yesterday. It was reported that RBI’s special measures attracted US$136.4bn of foreign-currency inflows, including US$127.2bn through FCNR(B) deposits.”

“The scale of the inflows materially strengthens the RBI’s FX buffer, but has also pushed banking system liquidity to a record INR9.7tn and lifted its forward dollar liabilities to around US$137bn.”

“With the FCNR(B) window now closed (as of 31 Aug), the exceptional near-term dollar supply should fade.”

“Potentially, there may be more two-way management from here, with the RBI potentially using periods of INR strength to absorb USD or reduce its forward exposure rather than allowing appreciation to run unchecked.”

“USD/INR closed at 94.50 levels. Bearish momentum on daily chart intact but RSI fell to oversold conditions. Moderation in pace of decline is not ruled out.”

“Support at 94.30 levels, 94.15 (Jun low). Resistance at 96.74 (76.4% fibo), 95.10 (61.8% fibo retracement of Jun low to Jul high).”