What’s going on here?
The Indian rupee is expected to open largely unchanged on Thursday, despite a broader decline in other Asian currencies and a rising US dollar.
What does this mean?
Non-deliverable forwards (NDFs) suggest the rupee will start the day around 83.44-83.46 to the US dollar, close to the previous session’s 83.4550. The Reserve Bank of India (RBI) has been actively defending the rupee to prevent it from falling below the all-time low of 83.5750. On Wednesday, the rupee peaked at 83.3350 before easing back down. This stability highlights the RBI’s intervention strategies, with some currency traders considering shorting the dollar/rupee. Additionally, foreign inflows into Indian bonds are expected to hit a decade-high of $2 billion on June 28, boosting market sentiment.
Why should I care?
For markets: Steady as she goes.
The rupee’s stability amidst broader Asian currency declines offers a unique positioning for investors. Foreign inflows into Indian bonds and shares remained strong, with a net $188.8 million in shares and $264.5 million in bonds bought by foreign investors on June 18. This resilience, coupled with expected rate cuts by the US Federal Reserve due to lower inflation and slowing economic growth, positions Indian markets attractively for future investments.
The bigger picture: Global financial shifts in play.
While the US dollar index (DXY) rose to 105.25 and Brent crude futures edged up to $85.1 per barrel, the anticipated September Fed rate cut, with over 60% probability, reflects impending shifts in global monetary policies. If the ING Bank’s forecast for a weak personal consumption expenditures (PCE) deflator report holds, the US could see rate cuts solidified, impacting global investment dynamics. These changes might bolster inflows into Indian assets even further, positioning India as a beneficiary in the evolving financial landscape.
