Rupee closes highest in over a month on overseas inflows

The domestic currency settled at 81.94 per US dollar as against 82.18 on Thursday. Friday’s closing level marks the strongest since May 8.

On a technical basis, the rupee crossed a key gauge for the first time in more than a year, suggesting the possibility of further gains ahead, currency traders said.

“The Indian rupee settles at the strongest level in a month as the benchmark Nifty index closed to a record level backed by foreign fund inflows,” HDFC Securities research analyst Dilip Parmar said.

“Technically, the rupee has closed above the 200-day simple moving average for the first time after January 2022 which also bodes well for further appreciation in the near term,” he said. Traders said that the re-balancing of the FTSE and the Sensex, which took place on Friday, was a factor that had propelled inflows into Indian markets.

Over the last few weeks, the rupee has benefited from firm overseas inflows into Indian equities, reflecting foreign investors’ optimism over domestic growth prospects. India’s GDP growth in the previous fiscal year outstripped expectations, with the country ranking as the fastest growing amongst major economies.

Further, with the European Central Bank (ECB) having on Thursday raised interest rates and signaled further tightening, the US dollar index tumbled to its lowest level in five weeks, boosting emerging market currencies like the rupee.The ECB’s rate hike comes amid the US Federal Reserves’ decision earlier this week to pause tightening after having delivered rate hikes at 10 consecutive policy meetings since March 2022.

“Rupee opened 21 paise stronger due to DXY (dollar index) weakening to 102.18 levels after the ECB raised their refinancing rate to the highest levels in 22 years by 25 bps,” Ritesh Bhansali, vice-president at Mecklai Financial Services said.

“The Indian rupee is expected to trade between a tight range of 81.70 to 82.15,” he said. Treasury consultant CR Forex Advisors sees the rupee in a range of 81.80-82.70/$ over the near term, with the firm flagging risks from a wider domestic trade deficit and the possibility of more Fed rate hikes later in the year.