What’s going on here?
The Indian rupee (INR) is projected to open slightly stronger at 83.92 per US dollar (USD), up from its previous close of 83.9525, thanks to interventions by the Reserve Bank of India (RBI).
What does this mean?
For much of August, the rupee has hovered near the 84 mark, occasionally strengthening to 83.75. The RBI has taken active steps to prevent the currency from slipping past 84, though this strategy might change based on Federal Reserve (Fed) Chair Jerome Powell’s remarks at the upcoming Jackson Hole meeting. Traders are closely monitoring Powell’s speech for clues about potential interest rate cuts. Goldman Sachs expects a series of 25 basis points (bps) cuts in September, November, and December, while investors anticipate a total of 100 bps cuts by year-end.
Why should I care?
For markets: All eyes on Powell.
The market’s reaction to Powell’s statements could determine whether the rupee strengthens or weakens further. Currently, the one-month non-deliverable forward for the rupee is quoted at 83.99, and the onshore one-month forward premium sits at 7 paise. Other market indicators show the dollar index (DXY) down to 101.34, Brent crude futures down 0.2% at $77.1 per barrel, the yield on the US ten-year Treasury note at 3.84%, and India’s ten-year government bond yield at 6.86%.
The bigger picture: Global economic currents.
The rupee’s performance hinges not just on local monetary policy but on global economic movements. If the Fed signals more aggressive rate cuts, the dollar may weaken, giving the rupee a breather. Conversely, if the dollar strengthens post-Powell’s speech, the RBI’s resolve to defend the 84 mark could face severe tests. Foreign investors sold a net $51.3 million worth of Indian shares on August 22, adding another layer of complexity to the rupee’s outlook.
