FOREX
Rupee fluctuates intraday on global economic developments
The rupee has seen marked volatility in intraday trading today, moving about 22 paise so far amid the possibility of US President Donald Trump imposing tariffs on China, the decline in the Dollar Index (DXY), and strong corporate earnings, among other factors.
The Indian currency has tested a high and low of 86.5125 and 86.2850 per US dollar in trading so far on Tuesday. The rupee closed five paise stronger at 86.56 per USD on Monday, compared to its previous close of 86.61.
Amit Pabari, MD, CR Forex Advisors, observed that the rupee experienced notable volatility in trading so far on Tuesday, declining initially but recovering later. This movement was driven by a combination of global and domestic factors.
“Globally the markets had high expectations of significant tariffs being imposed by the United States -- specifically 60 percent on imports from China. However, these harsh tariffs were not implemented on inauguration day, easing trade tensions.
“This development led to a dip in US 10-year bond yields to 4.5370 percent which caused the Dollar Index to decline sharply from 110 to around 108.30. In response, the Euro and Pound broke key levels while emerging market currencies including the rupee gained strength and added further pressure on the dollar,” he said.
Moreover, the anticipation surrounding the Bank of Japan’s upcoming policy meeting on the 24th has impacted global markets.
“Expectations of a 25 basis point rate hike along with Governor Kazuo Ueda’s hawkish remarks have strengthened the yen. This shift could potentially trigger the unwinding of the global yen carry trade which would add further downward pressure on the dollar.” Pabari said.
He underscored that India’s positive economic outlook on the domestic front contributed to the rupee’s recovery.
“Strong corporate earnings along with optimistic budget expectations have boosted investor confidence in Indian assets. Furthermore, robust Kharif and Rabi crop harvests are expected to keep food inflation in check. The Reserve Bank of India has also signaled its readiness to intervene in the currency market to stabilize the rupee as the dollar weakens globally,” Pabari said.
Bank of Baroda Economists Aditi Gupta and Dipanwita Mazumdar assessed that, based on their analysis, the depreciation pressure on INR stems largely from a stronger dollar.
“Even so, India’s strong fundamentals have limited the slide in the rupee, with the depreciation in the domestic currency lower than other global currencies in terms of spot rates, NEER basis, and inflation-adjusted basis.
“....we believe that much of the watershed decline in the rupee has been past us, and we can expect the currency to settle in the range of 86.5- 87/$ in the near term,” they said.
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