Nimesh Vora

Offshore investors are using options to position for a potential rally in the Indian rupee, encouraged by Wall Street banks promoting strategies built on the prospect of a trade deal between the United States and India.

Goldman Sachs is advising clients to take a bullish position on the Indian rupee, using an exotic option structure, despite its latest slide toward its all-time low.

India's gold reserves crossed the $100 billion mark for the first time, according to the Reserve Bank of India's latest foreign exchange reserves data, buoyed by a global price rally even as the central bank's purchases slowed sharply this year.

The Reserve Bank of India sold U.S. dollars through state-run banks before the spot market opened on Friday, traders said, repeating its midweek pre-market intervention and underscoring its intent to support the rupee.

The Indian central bank's aggressive foreign exchange market intervention on Wednesday has sparked a positive shift in sentiment on the rupee in the options market, with a key volatility skew turning the most in favour of the currency in over a decade.

The Reserve Bank of India (RBI) is estimated to have sold $3 billion to $5 billion in spot and non-deliverable forward markets to support the rupee on Wednesday, traders said, marking its largest intervention in months.

The Reserve Bank of India intervened heavily in the currency market on Wednesday to shore up the rupee, traders said, adding the move was straight from the central bank's script defending the local currency back in February.

The Indian rupee's recent tight moves suggest the central bank has reverted to its old playbook of using heavy market intervention to keep the currency anchored to a level it deems appropriate, traders said.

The Indian rupee may slip to a lifetime low on Wednesday ahead of the central bank's policy decision, with opinion divided on whether the monetary authority will cut rates to bolster growth or maintain status quo.

India's central bank will cut interest rates on Wednesday, despite the rupee repeatedly making all-time lows, in a bid to prioritise growth amid worsening trade tensions with the U.S., according to three analysts.