By Jaspreet Kalra
The Indian rupee was largely unchanged on Wednesday as likely intervention offset weakness in Asian peers, while analysts parsed data on the central bank's forward dollar liabilities to gauge how it may impact the currency's outlook.
Data on Tuesday showed that the Reserve Bank of India's net forward dollar sales ballooned to a record $106.7 billion in May as it intervened to support the rupee, which had fallen to a record low of nearly 97 per dollar at the time.
The unit has since recovered as oil prices slumped and policymakers unveiled measures to support it.
The rupee was last at 94.68 per dollar on Wednesday. Traders said state-run banks were spotted offering dollars near the rupee's intra-day low of 94.7450, most likely on behalf of the RBI.
Expectations that the RBI is unlikely to allow the currency to weaken past the 95 mark supported sentiment. Its Asian peers, however, slipped 0.1%-0.4% after Iran said it would not meet with top U.S. envoys following an outbreak of hostilities.
Oil prices were marginally higher on the day.
FORWARD PANGS
Traders and analysts reckon that the rupee's recovery may be limited in the face of the RBI's chunky forward dollar liabilities.
Recent policy measures aimed at shoring up dollar inflows are tipped to expand the forward book further - as banks swap dollars for rupees with the RBI at a subsidised cost - while also supplementing headline FX reserve levels.
The RBI is likely to tactically use dollar inflows to retire a portion of its forward book, but a meaningful unwind is likely only once foreign direct investment or portfolio flows into equities recover, said Vivek Rajpal, Asia macro strategist at JB Drax Honore.
Analysts, including Rajpal, expect the forward book to expand in the near term, reflecting the aforementioned swap transactions. India's foreign exchange reserves stood at $672.59 billion in mid-June.