Traders anticipate more unwinding of arbitrage activity to play out ​this week as well

The Indian rupee firmed on Monday, as a regulation-spurred unwinding of arbitrage positions continued to spark clustered ​dollar sales.

The rupee rose to around 92.80 per U.S. dollar, ‌its strongest level in two weeks, before trimming gains as importer dollar bids picked up. It was last at 93.07.

The currency had bounced back sharply last week after ​the Reserve Bank of India tapped crisis-era measures to clamp down ​on speculative and arbitrage trades that had become a pain point ⁠for the rupee.

Traders anticipate more unwinding of arbitrage activity to play out ​this week as well.

Signs of the unwinding persisting were visible in the ​discount the daily RBI reference rate quoted on Monday, of about 3 paisa, signalling that dollar-selling interest outweighed dollar-buying.

The reference rate is the daily benchmark used to settle contracts ​and often attracts concentrated dollar buying or selling. Banks are required to ​comply with RBI’s limits by April 10.

The measures have also created dislocations in the ‌spread ⁠between onshore and non-deliverable forwards.

Elsewhere, U.S. markets remained on edge after the country’s President Donald Trump warned of fresh attacks on Iran unless it reopened the Strait of Hormuz by Tuesday.

The dollar index dropped 0.1% to 100.1, U.S. ​stocks and currencies traded ​mixed, while Brent ⁠crude futures ticked up to $109.8 per barrel.

There are no credible signs of de-escalation in the Iran conflict, keeping ​Asian FX under pressure and reinforcing a bias toward ​USD strength, ⁠MUFG said in a note. The dollar index has added 2.5% since the war began.

Indian investors will pay close attention to RBI’s ⁠monetary ​policy decision on Wednesday.