Indian rupee averts record low on likely RBI intervention as local equities slide

The Indian rupee was nearly flat on Friday as likely intervention from the Reserve Bank of India helped the currency hold above its all-time low amid pressure from weakness in local equities, which declined tracking a sell-off in global peers.

The rupee was at 83.7225 against the US dollar as of 10:35 a.m. IST, nearly unchanged from its close at 83.7175 on Thursday.

Benchmark Indian equity indexes, the BSE Sensex (.BSESN), opens new tab and Nifty 50 (.NSEI), opens new tab were down about 1% each, tracking a sell-off in global peers.

US stock futures also extended their declines, with Nasdaq futures down 1.3% while S&P 500 futures fell by 0.7%.

Dollar bids from at least two large US based foreign banks, likely on behalf of custodial clients, pressured the rupee in early trading, a foreign exchange trader at a private bank said.

The RBI likely sold dollars via state-run banks to support the local currency as it hovered close to its all-time low of 83.7450, traders said.

Concerns about geopolitical tensions and a slowdown in the US economy, in light of data that signalled an unexpected slump in U.S. manufacturing activity last month, drove U.S. bond yields lower.

The 10-year US Treasury yield hit a six-month low of 3.94% in Asia trading while the dollar index was at 104.3. Asian currencies were mostly up by 0.1% to 0.8%.

“A return to broad-based USD weakness is still possible this month... but the (the dollar index) still needs to break below 104 first,” DBS Bank said in a note.

Meanwhile, dollar-rupee forward premiums rose with the 1-year implied yield up 4 basis points at 1.91%, its highest level in six months, lifted by the decline in US bond yields.