The Indian rupee is experiencing a notable surge, rising nearly 1% during intraday trading and surpassing the critical 84/$ threshold, a level not witnessed since June 2024. This remarkable recovery has effectively erased losses incurred since Donald Trump’s victory in the U.S. Presidential elections back in November 2024. Traders attribute this upward movement to robust dollar inflows and a wave of short-covering, fueled by optimistic expectations surrounding a potential U.S.-India trade agreement.
Rupee Hits New Highs in Early Trading
In early trading, the rupee peaked at 83.78, reflecting a 0.8% increase for the day. By 10:35 a.m. IST, the currency traded at 83.93 per U.S. dollar. Notably, the rupee has appreciated nearly 2% this week alone. Following a dip to an all-time low of 87.95 in February, amidst uncertainties regarding Trump’s tariff policies, the currency has rebounded sharply in March and April. This recovery has been bolstered by significant portfolio inflows and hopes that India will be among the first nations to finalize a trade deal with the U.S.
Market Dynamics Driving the Rupee’s Strength
Recent insights from Reuters reveal that traders are engaging in “short covering” due to reports suggesting that a trade deal could enhance manufacturing in India. A Singapore-based hedge fund trader noted that the combination of exporters selling dollars and a reduction in negative bets on the rupee has contributed to this bullish sentiment. According to a Reuters poll, investors are increasingly optimistic about the rupee, aligning with trends seen among its regional counterparts.
Uninterrupted Foreign Investment Boosts Market Confidence
A significant factor behind the rupee’s strength is the sustained influx of foreign investment. For the 11th consecutive session, foreign institutional investors (FIIs) have been net buyers in Indian equities, marking the longest streak of inflows in two years. Traders highlight that the Reserve Bank of India (RBI) has refrained from aggressive dollar purchases, which has further supported the rupee’s ascent. However, there are indications that the RBI may begin dollar buying to stabilize levels.
The Dollar Index Plays a Role in Currency Movements
The relative weakness of the dollar has also played a crucial role in strengthening the Indian currency. The dollar index has fallen significantly from its January peak of 110, currently hovering around 100. Meanwhile, many Asian currencies are showing strength, with the offshore Chinese yuan up by 0.3%, reflecting renewed optimism regarding U.S.-China trade discussions.
In summary, the Indian rupee’s impressive recovery is attributed to a combination of favorable market conditions, investor sentiment, and strategic foreign investments, setting a positive tone for the currency’s outlook as we move forward.
