The Indian rupee’s rally continues as the domestic unit closed at its 10-week high mark of 94.48 against the dollar. The key factors supporting the currency include the higher-than-expected dollar inflows through the RBI’s foreign currency non-resident deposit scheme and a soft dollar index.
The currency opened strong at 94.30 per dollar and went on to touch an intraday high of 94.27 against the dollar, reaching its two-month high. By the end of August, the Reserve Bank of India had mobilised a total of $136.4 billion through its special schemes, over which the local currency has been posting strong gains.
Dollar index down; Japanese yen appreciates
Additionally, the dollar index, which gauges the value of the greenback against a basket of six major currencies, was down on the day, which added to the gains for the rupee. A soft dollar makes emerging market currencies more attractive for foreign investors.
“ US dollar fundamentals have softened somewhat: weaker US private employment data, falling Treasury yields and comments from Fed officials suggesting there is no immediate need for a rate hike have reduced expectations of aggressive Fed tightening,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP.
Most Asian currencies posted gains, and the Japanese yen, which carries significant weight in the dollar index basket, appreciated sharply over the past two sessions.
Brent crude at $97
Oil prices rose around 2% on Thursday, driven by renewed military action between the US and Iran. Brent was last quoted near the $97 per barrel mark, while the US contract, West Texas Intermediate (WTI), was trading near the $92 per barrel level.
Currency market experts have stated that crude oil prices would be a major factor for the domestic unit’s trajectory, as India is a net oil importer, and a rise in oil prices weighs heavily on the country’s current account deficit.
Outlook for the Indian rupee
For further cues on the Indian rupee, the investors are likely to watch out for key US economic data, including non-farm payrolls reports and the unemployment report, which could influence the dollar’s trajectory and the US Federal Reserve’s expectations for a rate hike.
Outlining the key levels to watch for the currency, Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities said, “Rupee is expected to maintain a positive bias, with the range seen between 94.25–95.”
