Rupee Hits Two-Month High of 86.54 Against the US Dollar: What’s Next for the Domestic Currency?
The Indian rupee continued its upward momentum for the third consecutive session, appreciating by 26 paise to close at 86.55 (provisional) against the US dollar on Tuesday. The domestic currency surged to a nearly two-month high, supported by positive sentiment in domestic equity markets and a weakening US dollar.
The greenback declined on the back of disappointing US economic data, while the strength of Asian currencies further aided the rupee’s gains. However, rising crude oil prices capped sharp appreciation, preventing the rupee from climbing further.
Let’s explore the key drivers behind this rally and whether it can maintain its strength in the coming weeks.
Why is the Rupee Gaining?
Several factors contributed to the rupee’s appreciation:
- Weak US Dollar: The US dollar declined after lackluster economic data, which dampened investor sentiment. The Dollar Index—which measures the greenback’s strength against a basket of six major currencies—fell 0.04% to 103.32.
- Positive Domestic Equities: The BSE Sensex surged 1,131.31 points (1.53%) to 75,301.26, while the Nifty 50 climbed 325.55 points (1.45%) to 22,834.30. Strong equity markets often attract foreign inflows, supporting the rupee.
- Foreign Banks Selling Dollars: At least three large foreign banks were reported to have sold dollars in the forex market, boosting the rupee.
- Asian Currencies Strengthening: A broad-based appreciation in Asian currencies provided additional support to the Indian currency.
- Lower Trade Deficit: India’s trade deficit fell to a three-and-a-half-year low, easing pressure on the rupee. However, concerns remain as exports contracted sharply, and imports, particularly oil and gold, saw a significant decline.
How Did it Perform?
At the interbank forex market, the rupee opened at 86.71, touched an intraday high of 86.54, and a low of 86.78 before closing at 86.55 against the US dollar.
This marks the third straight session of gains, during which the rupee has appreciated by 67 paise.
- Monday: The rupee appreciated by 24 paise to close at 86.81.
- Thursday: The rupee gained 17 paise, settling at 87.05.
Will it Continue to Strengthen?
According to analysts, the rupee may continue to trade with a positive bias due to global factors. However, certain risks could limit further gains:
- Crude Oil Prices Rising: Brent crude rose 1.31% to $72 per barrel in futures trade. Higher oil prices tend to increase India’s import bill, putting pressure on the rupee.
- FII Outflows: While domestic markets remain strong, foreign institutional investors (FIIs) selling Indian assets could impact it negatively.
- US Fed Meeting: The Federal Open Market Committee (FOMC) meeting will be a crucial event. If the US Federal Reserve signals rate hikes, the dollar could recover, leading its depreciation.
- Trump’s Trade Policies: US President Donald Trump’s plan to impose new tariffs on April 2 could lead to market volatility and affect emerging market currencies like the rupee.
Analyst Outlook:
Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, expects USD-INR to trade in the 86.30 to 86.80 range in the near term.
Key Financial Ratios
To provide more clarity, here’s a quick look at some important financial indicators:
| Factor | Current Data |
|---|---|
| its Closing Price | 86.55 per USD |
| Dollar Index | 103.32 (-0.04%) |
| Brent Crude Price | $72 per barrel (+1.31%) |
| Sensex Performance | +1,131.31 points (1.53%) |
| Nifty Performance | +325.55 points (1.45%) |
| Trade Deficit | Three-and-a-half-year low |
| Rupee’s Gain This Month | +0.8% |
Q&A: Quick Summary for Readers
To make it easier to understand the article, here are some key questions and answers from the discussion:
1. Why did it appreciate against the US dollar?
The rupee gained due to a weaker US dollar, strong domestic equity markets, and foreign banks selling dollars. The overall strength in Asian currencies also played a role.
2. How much has it gained in the last three sessions?
The rupee has gained 67 paise over the past three sessions, closing at 86.55 per USD on Tuesday.
3. What is the impact of crude oil prices on it?
Rising crude oil prices increase India’s import bill, leading to higher demand for US dollars and putting pressure on it.
4. What factors could limit further gains for it?
Potential FII outflows, rising crude oil prices, US Fed policy decisions, and Trump’s trade policies could limit its upside.
5. What is the expected USD-INR trading range?
Analysts expect the rupee to trade between 86.30 and 86.80 in the near term.
6. What should traders watch out for?
Traders should closely monitor US economic data, Fed policy decisions, crude oil prices, and foreign investor activity in Indian markets.
Conclusion
The Indian rupee’s recent rally has been driven by multiple positive factors, including a weaker US dollar, strong domestic equities, and lower trade deficit. However, challenges remain in the form of rising crude oil prices, potential FII outflows, and uncertainty over US trade policies.
In the short term, the rupee is likely to remain range-bound between 86.30 and 86.80, with further movements depending on global economic cues. Investors and traders should keep an eye on key economic indicators to gauge future trends in the forex market.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.