Rupee: Forex critics attributed the steep climb in the local unit to a few positive aspects, such as strong domestic macroeconomic data, an inrush of foreign reserves, and a weak American currency against prominent Asian rivals.
Strong Performance Amid Political and Economic Factors
The Indian rupee surged to a two-month high, closing with a gain of 28 paise at 83.14 (provisional) against the US dollar on Monday.
This notable rise was driven by a combination of robust domestic macroeconomic data, foreign fund inflows, and a weakened US dollar against major Asian currencies.
Additionally, the domestic equity benchmarks saw a significant surge of over 3%, influenced by exit poll results predicting a strong comeback for the ruling BJP-led government for a third consecutive term.
Forex Market Movements
At the interbank foreign exchange market, the rupee opened at 83.09, fluctuating between a peak of 82.95 and a low of 83.17 against the US dollar during intra-day trading.
It ultimately settled at 83.14 (provisional), a 28 paise improvement from its previous close of 83.42 on Friday.
This marks the highest closing level since March 21, when the rupee closed at 83.13, and reflects the largest single-day rise since November 15, 2023, when it appreciated by 24 paise.
Contributing Factors
Forex analysts attributed the rupee’s strength to several positive factors:
- Strong Macroeconomic Data: India’s robust economic indicators bolstered investor confidence.
- Foreign Fund Inflows: Predictions of political stability and a continued BJP-led government attracted fresh foreign investments.
- Weak US Dollar: The American currency’s decline against major Asian rivals provided additional support.
- Lower Crude Oil Prices: OPEC+ maintained the status quo in oil output, leading to lower crude prices and benefiting the Indian currency.
Analyst Insights
Anuj Choudhary, a Research Analyst at Sharekhan by BNP Paribas, highlighted the impact of the positive political outlook on market sentiment.
“The Indian rupee appreciated as domestic markets rallied after exit polls predicted a firm comeback of the BJP-led government for the third consecutive term.
This may lead to political stability and result in fresh foreign inflows. Strong macroeconomic data also supported the rupee,” Choudhary stated. However, he noted that the disappointing manufacturing PMI data tempered the gains.
Future Outlook
Looking ahead, a rise in risk appetite in global markets, a continued weak dollar, and stable crude oil prices are expected to support the rupee.
However, investors are likely to remain cautious in anticipation of the Reserve Bank of India’s monetary policy announcement later this week, which could influence further market movements.
