Rupee Rebounds After Three-Day Decline, Gains 50 Paise to Reach Rs 85.45

The Indian rupee ended a three-day decline on Friday, gaining 50 paise to close at Rs 85.45 against the US dollar. This recovery was driven by a significant drop in the dollar index and a robust performance in domestic equity markets. Despite ongoing challenges from rising crude oil prices and foreign fund outflows, the rupee’s rebound reflects a growing global risk appetite.

Rupee’s Volatile Trading Session

The rupee experienced notable volatility in the interbank foreign exchange market on Friday. It opened at Rs 85.95 and fluctuated between an intraday high of Rs 85.11 and a low of Rs 86.10 before settling at Rs 85.45. This marked a substantial recovery from the previous day’s close of Rs 85.95. Over the last three sessions, the rupee had depreciated by 53 paise, making this rebound particularly significant. Analysts pointed to a general weakness in the US dollar as a primary factor in the rupee’s recovery. Anuj Choudhary, a research analyst at Mirae Asset Sharekhan, indicated that while the rupee may continue to show a positive trend due to the dollar’s weakness and improved global sentiments, selling pressure from foreign investors could limit its upward movement. He suggested that traders should keep an eye on upcoming US existing home sales data, predicting that the USD-INR spot rate could fluctuate between 85 and 85.70.

Factors Influencing the Currency Movement

The dollar index, which gauges the strength of the US dollar against a basket of six major currencies, fell by 0.60% to 99.36. This decline was attributed to a renewed interest in riskier currencies and decreasing US Treasury yields. Dilip Parmar, a senior research analyst at HDFC Securities, noted that the rupee’s gain was the largest in a single day since November 11, 2022. He emphasized that the rupee’s upward movement was largely driven by a weaker dollar and strong domestic equity performance. Additionally, the Reserve Bank of India’s initiatives to attract foreign investment in corporate bonds and provide short-duration liquidity have further supported the rupee’s appreciation. Parmar projected that the USD-INR spot may find support at 84.94 and face resistance around 86.15.

Impact on Equity Markets

The positive sentiment in the currency market was mirrored in the equity markets, where the benchmark BSE Sensex surged by 769.09 points, or 0.95%, closing at 81,721.08. Similarly, the NSE Nifty rose by 243.45 points, or 0.99%, to settle at 24,853.15. The enthusiasm in the stock market was bolstered by foreign institutional investors (FIIs), who were net buyers, acquiring equities worth Rs 1,794.59 crore on Friday. This influx of foreign capital contributed to the overall bullish sentiment in the market, highlighting the interconnectedness of currency and equity performance.

Forex Reserves Update

In a separate development, the Reserve Bank of India reported a decline in the country’s foreign exchange reserves, which fell by $4.888 billion to $685.729 billion for the week ending May 16. This drop in reserves comes amid fluctuating currency values and changing market conditions. The decrease in forex reserves may raise concerns about the country’s ability to manage external shocks, particularly in light of ongoing global economic uncertainties. As the rupee stabilizes, market participants will be keenly observing both currency and reserve trends to gauge future economic stability.

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