Strong Domestic Equities and Eased Inflation Support Indian Currency
Mumbai, May 14 – The Indian rupee appreciated by 31 paise to 85.05 against the US dollar in early trade on Wednesday, buoyed by strong domestic equities and favourable macroeconomic indicators.At the interbank foreign exchange, the local unit opened at 85.05 per US dollar, registering a notable gain from the previous close of 85.36. It briefly touched 85.23 in initial trade, demonstrating increased investor confidence following the release of encouraging economic data.
Inflation Eases, Boosting Sentiment
One of the key drivers behind the rupee's uptrend was a significant drop in retail inflation, which eased to a nearly six-year low of 3.16 percent in April. Analysts say the softer inflation reading provides the Reserve Bank of India (RBI) with the room to consider another rate cut in its upcoming June monetary policy review.“India’s inflation rose by 3.16 percent, lower than last month and almost in line with expectations. This could give RBI another chance to cut rates next month,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.
Equities Strengthen, FIIs Remain Cautious
The Indian equity market reflected the positive mood, with the 30-share BSE Sensex gaining 250.80 points to 81,399.02, while the NSE Nifty rose 58.45 points to 24,636.80.Despite the upbeat equity movement, foreign institutional investors (FIIs) turned net sellers, pulling out Rs 476.86 crore worth of equities on Tuesday, according to exchange data.
External Pressures: Crude Prices and Dollar Index
While the rupee gained on domestic factors, global cues posed mixed signals. Forex traders remained cautious about the rising Brent crude oil prices, which, although marginally lower at USD 66.27 per barrel in futures trade, have recently surged to levels that could widen India’s trade deficit.Bhansali noted that dollar buying from oil companies, spurred by higher crude prices, led to increased hedging activity. This had contained the rupee’s appreciation on Tuesday when it settled flat despite early gains.
Meanwhile, the US dollar index was slightly lower by 0.05 percent at 100.95, offering some relief to emerging market currencies including the rupee.
Outlook for the Day
Bhansali projected that the rupee may trade within a range of 84.75 to 85.50 in the near term. “Exporters will continue to sell on all good upticks, while importers can buy the dips,” he added, hinting at balanced movement driven by both sides of trade.As markets weigh the prospect of RBI’s next move and monitor global oil trends, the rupee’s trajectory remains cautiously optimistic.