Indian Rupee Hits Three-Week High Ahead of RBI Policy Decision

The Indian rupee finished stronger on Tuesday as the unwinding of residual arbitrage positions provided support, even as global markets remained on edge. The currency closed at 93.0075 against the dollar, marking its most robust performance since mid-March. This recovery follows a period of volatility where the currency hit multiple record lows, a trend countered by intervention from the central bank to limit speculative activity within the domestic market of India. Market attention is currently fixed on a critical deadline set by the United States for a deal with Iran. Tensions in the Middle East escalated on Tuesday as Israel and Iranian forces exchanged attacks. The geopolitical friction intensified after Tehran declined to reopen the Strait of Hormuz or agree to a ceasefire ahead of the 8 p.m. ET deadline imposed by the White House. > No one knows whether the deadline is another bout of maximalist pressure from the White House, but until there is news of a ceasefire, or perhaps a prolonged postponement of the current deadline, the dollar is likely to stay bid, ING said in a note. The ongoing conflict has kept Brent Crude Oil prices hovering near $110 per barrel, a factor that has contributed to significant capital outflows. Foreign investors have net sold approximately $16 billion in Indian equities across March and April. Despite these pressures, the USD/INR pair has stabilized recently due to domestic policy measures. Traders are now looking toward the upcoming monetary policy decision from the Reserve Bank of India on Wednesday. While analysts widely expect interest rates to remain unchanged, the market is seeking clarity on the central bank's strategy for managing liquidity and supporting the rupee's value. The spread between onshore and non-deliverable forwards has reached its widest point since the pandemic, highlighting the impact of recent arbitrage unwinding on global market structures.