Against the dollar, the rupee closed at 84.1075 against the previous close of 84.1150.
While India’s benchmark equity indices were in the red for most of the session, they reversed course in the later hours of trading, finishing around 0.9% higher each.
Foreign banks were seen bidding for dollars, possibly on behalf of custodial clients, while dollar offers from state-run banks kept a lid on the rupee’s losses, traders said.
Regular intervention by the Reserve Bank of India by state-owned banks, as on Tuesday, has kept the rupee’s volatility significantly below that of its regional peers.
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For instance, the 1-month implied volatility of the offshore Chinese yuan is 8.8%, while that of the rupee is 2.7%. The RBI is well-equipped to deal with rising volatility surrounding the outcome of the US presidential election, two sources familiar with the bank’s thinking told Reuters last week.
“FX options markets have priced in respectable levels of exceptionally high volatility in the week ahead,” ING Bank said in a note.
The bank said it expects Republican victories in the presidential and congressional races to boost the dollar, while a win for the Democrats could prove negative for the greenback.
On the day, the dollar index fell 0.2% to 103.7 while most Asian currencies rose. The polls suggest that the US election is virtually a coin toss, and the outcome won’t be known until days after the polls close.
Markets, however, are likely to take cues from early trends that are expected to start trickling into Asia on Wednesday morning.
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