The Indian rupee is expected to extend its rally on Thursday, as India has committed to halting Russian oil imports and, by the forceful defense of the currency in the previous session, as stated by Donald Trump.
The rupee is expected to open in the 87.60-87.70 range against the U.S. dollar, following a 0.8% rally on Wednesday to finally close at 88.0750, nearly making it the best day in four months.
Trump mentioned that Indian Prime Minister Narendra Modi assured him India would stop importing Russian crude. India’s continued purchases of discounted Russian oil have caused tension with Washington and contributed to punitive tariffs on Indian exports.
“Trump’s remarks increase hopes for a possible trade agreement between India and the U.S., and with recent developments, the rupee is likely to strengthen further,” said a portfolio manager at a hedge fund in Singapore.
The Reserve Bank of India has flipped the script by aggressively selling dollars, creating a dollar shortage and an oversupply of rupees in the market. This made the dollar cheaper and the rupee more valuable, leading to stop-loss orders on long dollar positions and causing a notable squeeze.
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The RBI’s unexpected sale of a large volume of U.S. dollars increased the dollar supply in the market. Investors with a long dollar position had placed automatic sell orders to protect against losses if the dollar declined. When the RBI’s dollar sales caused the dollar’s value to decrease, these stop-loss orders were automatically activated.
In this case, the RBI’s move triggered a “short squeeze” on the dollar, forcing those who had bet on its strength to sell, which in turn pushed the dollar’s price down even further.
