The Indian rupee rallied on Tuesday on the back of strong intervention by the Reserve Bank of India, which traders said could deter heavy speculative positioning against the currency in the near term.

The Reserve Bank of India intervened in the foreign exchange market this week to curb speculation in the rupee, according to a person familiar with the central bank’s thinking, surprising traders who expected a more hands-off approach on the currency from the new governor.

The Reserve Bank of India (NSE:BOI) (RBI) took action in the foreign exchange market this week to limit speculation in the rupee, an unexpected move that caught traders off guard who anticipated a more laissez-faire stance from the new governor,

The Indian rupee rose sharply on Tuesday, aided by the central bank's heavy-handed intervention, which also triggered stop losses for speculators betting against the currency.