Indian Rupee Extends Rebound

The Indian rupee appreciated toward the 8323 per USD mark, enjoying some respite after testing the record-low close of 83.6 through the first week of April amid fresh weakness in the US dollar, while markets assessed the monetary and currency intervention policies by the RBI. The central bank held its key rate at 6.5% this month, but noted there are upside risks to inflation due to elevated prices for fuel and metal commodities, while uncertainty about agricultural conditions for the year risked higher food prices, which are a key component of the Indian CPI. Still, weakness in the yuan maintained its broad pressure on Asian currencies, the main culprit behind the rupee's recent weakness.

Signs that the PBoC may be more open to setting weaker dollar pegs raised bets that Indian policymakers may respond with weaker intervention in the foreign exchange market, hence allowing the rupee to depreciate along with the yuan, and supporting India to compete with China in export markets.