The Indian rupee continues to show resilience, appreciating for the third consecutive trading session. On Monday, the rupee strengthened by 20 paise, closing at 86.80 against the US dollar, up from the previous close of 87. This upward trend is largely attributed to a weakening dollar and exporters offloading their greenbacks, reflecting a positive shift in market sentiment.

Factors Driving the Rupee’s Appreciation

Several key factors are contributing to the rupee’s recent performance:

• Weak Dollar: Concerns over a potential slowdown in the US economy have led to a dip in the dollar’s value against major global currencies. This decline has sparked worries about the effects on world trade, particularly amid ongoing tariff disputes.
• Investor Sentiment: According to Siddhartha Khemka, Head of Research at Motilal Oswal Financial Services, the Indian rupee’s gains are fostering a favorable atmosphere for investors. He noted that foreign institutional investors (FIIs) sold approximately ₹5,700 crore in equities recently, a significant reduction compared to the ₹15,500 crore sold in early March. This tapering of sell-offs suggests limited downside potential in the near future.

Upcoming Economic Indicators

Market watchers are keenly anticipating interest rate announcements from major central banks, including the US Federal Reserve on Wednesday, the Bank of Japan, and the Bank of England later in the week. Khemka pointed out that the Fed is expected to maintain its current interest rates, primarily due to inflationary pressures stemming from US tariff policies.

Trade Deficit Insights

In addition to currency movements, India’s merchandise trade deficit has narrowed significantly, hitting a 42-month low of $14.1 billion in February 2025, down from $19.5 billion in February 2024. Aditi Nayar, Chief Economist at ICRA, attributes this improvement to reduced imports of crude oil, gold, and silver.

• Year-on-Year Decline: The year-on-year decline in merchandise exports is partially influenced by a base year effect linked to the leap month.
• Surplus Expectations: Nayar anticipates that the current account balance may achieve a surplus of approximately $5 billion in the fourth quarter of FY2025, representing about 0.5% of GDP.

This strategic outlook on the rupee and trade dynamics indicates a cautiously optimistic future for the Indian economy. Market participants will closely monitor upcoming economic indicators that could further shape the currency landscape.