Dollar supply linked to the Reserve Bank of India’s special measures has supported the Indian rupee and added to the central bank’s foreign-exchange buffer. Those measures drew US$136.4bn of foreign-currency inflows, including US$127.2bn via FCNR(B) deposits, but the FCNR(B) window closed on 31 Aug. As that channel winds down, the earlier surge in near-term dollars is expected to fade and the RBI may shift towards more two-way currency management.
The same inflows have pushed banking system liquidity to a record INR9.7tn and lifted forward dollar liabilities to around US$137bn. USD/INR closed near 94.50, with bearish momentum still evident while the RSI has moved into oversold territory. Technical levels flagged include support at 94.30 and 94.15, alongside resistance at 95.10 and 96.74.
Positioning after the FCNR(B) Window Closure
We need to adjust our positions quickly now that the special FCNR(B) deposit window closed on August 31. The massive wave of dollar inflows that supported the rupee is starting to dry up, which will likely slow down the currency’s recent gains. This shift means we should prepare for more balanced, two-way price movements rather than a continuous slide in the USD/INR pair.
Implications for Currency Intervention and Trading Strategies
The central bank’s FX buffer is now incredibly strong, with India’s foreign exchange reserves hovering near historic highs of over $680 billion. With this massive cushion, we expect policy makers to actively step in to buy dollars and reduce their forward liabilities, which currently stand at a heavy $137 billion. This intervention will likely put a floor under the USD/INR rate, preventing the rupee from appreciating unchecked.
Technically, the USD/INR is heavily oversold near the 94.50 level, making aggressive short positions highly risky right now. We suggest derivative traders focus on range-bound strategies, such as selling out-of-the-money puts or buying call options near the strong support zones of 94.30 and 94.15. If the rate bounces as expected, we can target resistance levels near 95.10 to take profits on these short-term positions.
