Indian currency ended at its lowest rate against U.S. dollar on Friday, being on its weakest since October 23. USD/INR closed on 39.71 level yesterday, after international investors and global corporations were moving out their funds out of Indian currency.
Concerned with global volatility and elevated risks in emerging economies, traders sold rupee for dollar and other less risky currencies. Indian rupee is considered a risky high-yielder, which is often used by carry traders as the long currency for low-gaining Japanese yen short-selling. As the carry trade is approaching its crisis times, massive closing on long rupee positions is just a matter of time.
Reserve Bank of India intervened with buying more than $52 billion to cool down the dollar depreciation and keep rupee less expensive compared to the U.S. currency. This step was aimed to prevent further increase of the volatility on Indian Forex market and to protect Indian economy from rupee over-valuation.
Given such a clear sign from the Indian financial powers, that Reserve Bank doesn’t want to see rupee too strong against U.S. dollar, Forex traders now can use it to start bidding short on the Indian currency, thus moving it even farther down.
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