The Indian rupee has recently demonstrated remarkable resilience against the U.S. dollar, achieving its strongest performance in over a month. This surge is attributed to significant dollar inflows and the unwinding of speculative long-dollar positions, culminating in the rupee’s best weekly showing in more than two years.
Rupee Gains Ground Against Dollar
On the latest trading day, the rupee closed at 85.9725 against the dollar, a notable improvement from the previous session’s 86.3675. During the trading session, the currency even reached a 10-week high of 85.9375, marking a 1.2% increase for the week. According to Sugandha Sachdeva, founder of SS WealthStreet, a financial research firm based in New Delhi, the uptick in domestic equities has positively influenced market sentiment towards the rupee.
Market Dynamics and Future Outlook
Despite the rupee’s recent gains, Sachdeva warns that if it cannot surpass the 85.90 threshold, it may encounter downward pressure, with immediate support anticipated in the range of 86.80 to 87.00. Traders have noted that large foreign banks appear to be in the know about significant dollar flows, consistently offering the dollar/rupee currency pair.
Impact of Foreign Inflows and Index Rebalancing
The rupee’s upward momentum has also been bolstered by equity inflows linked to the rebalancing of the FTSE’s All-World Index. Set to take effect this Friday, this rebalancing is projected to bring in around $1.5 billion. On the same day, India’s benchmark Nifty 50 index climbed by 0.7%, reflecting a shift in the sentiment of foreign portfolio investors, who have transitioned from being net sellers to buyers in two of the last four sessions.
- Key Highlights:
- Rupee closed at 85.9725 against the dollar.
- Recorded a 1.2% weekly gain.
- Potential support levels between 86.80 and 87.00.
- Anticipated inflows of $1.5 billion due to FTSE index rebalancing.
- Nifty 50 index increased by 0.7%.
Global Economic Trends to Watch
The rupee’s performance stands out amidst a backdrop of declining Asian currencies and a tentative rise in the dollar index. Traders are keenly focused on U.S. trade policies and the trajectory of economic growth. Upcoming U.S. services and manufacturing data, scheduled for release on Monday, will be critical for investors seeking insights into the health of the world’s largest economy.
With these developments, the Indian rupee is not just a currency but a reflection of broader economic trends. As the market evolves, investors and traders alike will be watching closely to see how these factors influence future currency movements.
