By The Indian rupee opened stronger against the US dollar on Friday, marking its eighth consecutive session of gains amid inflows into equities. This positive momentum continued despite a rise in the dollar index and crude oil prices.
Indian Rupee Opens Stronger, Hits Eight-Week High
According to Bloomberg data, the domestic currency opened at 86.23 against the greenback, strengthening by 14 paise from its previous close of 86.37 on Thursday. This marks the longest winning streak since March 24 of last year, as the rupee appreciated by 1.46% in March so far. However, despite its recent strength, the currency has seen an overall decline of 3% in the current financial year.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, stated that the indian rupee has been benefiting from sustained foreign institutional investor (FII) inflows into equities. FPIs have turned net buyers for the second time this week, with significant purchases in Indian debt markets. “The rupee has been gaining strength as FPIs bought heavily into Indian debt while also maintaining equity inflows,” Bhansali explained.
Additionally, demand from oil companies, which usually exerts pressure on the rupee, has remained muted. The Reserve Bank of India (RBI) has also refrained from aggressively buying dollars, allowing the currency to gain strength gradually. According to Bhansali, “For the day, the indian rupee should take support at 83.10 and remain within a range of 83.10 to 83.50.”
Factors Driving Indian Rupee Strength
The rupee’s performance has been influenced by multiple factors, including global economic trends, foreign investor sentiment, and central bank policies. According to Amit Pabari, Managing Director at CR Forex Advisors, the indian rupee has been reacting to the US Federal Reserve’s policy stance while drawing strength from strong FII inflows. “The currency is expected to trade between 86.00 and 86.80 in the near term. Given the current global headwinds, a slight rebound towards the 86.50-86.60 range is expected. However, as conditions improve, every uptick could present a selling opportunity, potentially driving the rupee towards the 85.80 level,” he added.
The dollar index, a measure of the US dollar’s value against a basket of foreign currencies, climbed 0.44% to 103.89. However, it weakened by 3.4% in March, marking its steepest monthly decline since November 2022. US Federal Reserve Chair Jerome Powell’s remarks about persistent inflation risks have contributed to the dollar’s fluctuations. As a result, the index climbed back to 104.13, signaling increased investor caution in the global currency market.
Foreign Portfolio Investments and Market Trends
One of the key drivers of the rupee’s recent rally has been the shift in foreign portfolio investment (FPI) trends. FPIs turned net buyers of ₹3,239.14 crore in Indian equities, reversing earlier outflows. However, despite the recent influx, global funds have pulled out ₹1.43 trillion from domestic stocks so far this year, reflecting a cautious approach amid global economic uncertainties.
Market analysts believe that improved sentiment in the Indian equity and debt markets has contributed to the rupee’s strength. The inflows into debt instruments suggest that global investors have confidence in India’s economic stability despite external challenges. Moreover, India’s attractive interest rates compared to developed markets have made its debt instruments appealing to investors looking for higher returns.
Crude Oil Prices and Their Impact on the Rupee
Crude oil prices have also played a crucial role in influencing the rupee’s movement. On Friday, Brent crude oil prices rose for the second consecutive day due to ongoing geopolitical tensions. As of 9:05 AM IST, Brent crude was up 0.35% at $72.25 per barrel, while West Texas Intermediate (WTI) crude climbed 1.64% to $68.26 per barrel.
Higher crude oil prices often exert downward pressure on the rupee because India is a major importer of oil. When prices rise, the country’s import bill increases, leading to higher demand for US dollars and putting pressure on the local currency. However, despite rising oil prices, the indian rupee has managed to sustain its strength due to strong FII inflows and limited dollar-buying interventions by the RBI.
Outlook for the Rupee
Going forward, market experts predict that the rupee will continue to trade within a tight range, with potential fluctuations influenced by global economic events and investor sentiment. If FPI inflows remain strong, the rupee could continue to strengthen. However, any further rise in crude oil prices or a stronger dollar index could pose risks to the rupee’s upward trajectory.
Moreover, the US Federal Reserve’s monetary policy decisions, inflation trends, and geopolitical developments will remain key factors shaping the rupee’s performance. The RBI’s stance on foreign exchange reserves and intervention strategies will also play a crucial role in determining the currency’s movement.
The Indian rupee’s recent strength against the US dollar reflects a combination of factors, including strong foreign investor inflows, a weakening dollar index, and controlled demand for crude oil imports. While the currency has shown resilience, market uncertainties and external economic conditions could impact its movement in the coming weeks.
For now, investors and market participants will closely watch global economic indicators, central bank policies, and geopolitical developments to gauge the rupee’s future trajectory. As the financial year progresses, the rupee’s movement will remain a key focus area for traders, policymakers, and businesses alike.
