RBI intervention, dollar flows push Indian rupee to two-month peak

The Indian rupee reached a two-month high against the U.S. dollar on Tuesday, buoyed by aggressive central bank intervention and inbound capital flows from foreign banks. For the first time in two months, the Indian rupee traded above the 95 to the dollar mark, bucking a downward trend in Asian currencies triggered by a global bond rout, which saw Japan's benchmark bond yield surpass the 3% mark for the first time in over 30 years.

According to Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors, the rupee showed significant strength during the day, indicating sustained RBI dollar-selling intervention and inflows of dollars due to specific transactions, alongside a positive shift in sentiment towards the currency. The rupee concluded at 94.9500, marking a 0.2% increase from the previous session and marking its third consecutive daily rise.

A state-backed infrastructure fund's inflows also contributed to the rupee's gains. The Reserve Bank of India, which has been actively involved in the foreign exchange market recently, once again sold dollars through state-run banks, which further boosted the rupee's value, even as Asian currencies declined between 0.2% and 5.2%.

Concurrently, the 10-year yield surged to its highest level since January 2025, as traders anticipated a potential U.S. rate hike this month amid rising inflation concerns. Additionally, U.S. President Donald Trump hinted at potential further missile attacks against Iran following a recent exchange of direct hostilities, heightening tensions in an economic dispute that had evolved into a broader conflict.

Brent crude prices rose by 2%, reaching $92.25 per barrel in Asian markets. Experts suggest that the rupee's upward momentum may be constrained by Brent's price fluctuations and elevated global yields, forecasting the currency to trade within the 94.75 to 95.25 range in the near term. The Indian central bank's currency intervention has drawn increased attention to its substantial FX forward book, which hit a record high of nearly $137 billion in July.