Indian Rupee strengthens to 3-week high as dollar extends fall

The dollar index was down 0.11 per cent, extending the monthly fall to over 3.6 per cent, the biggest since November 2022

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The Indian rupee closed at the highest level in three weeks on Monday and remained below the 87 mark as the US dollar continued to weaken amidst the reviving domestic economy.

 

The local unit ended 20 paise stronger at 86.80 against the US dollar, the highest since February 24 this year, according to Bloomberg data. The Rupee extends its gains to over 0.8 per cent in March after seeing five consecutive months of decline. 

 

The dollar index — a measure of the value of the US dollar relative to a basket of foreign currencies — was down 0.11 per cent, extending the monthly fall to over 3.6 per cent, the biggest since November 2022. 

 

Crude oil prices extended gains for the second day as China said it would take steps to revive consumption by boosting incomes. Brent crude oil was up 0.91 per cent to $71.22 per barrel, while WTI crude was up 0.98 per cent at 67.84 per barrel as of 3:25 PM IST.  

 

 

A sharper-than-expected drop in India’s inflation to 3.61 per cent, coupled with a "stellar" 5 per cent surge in industrial production, reinforced investor confidence in the rupee, according to Amit Pabari, managing director at CR Forex Advisors. With dovish Fed expectations keeping the dollar under pressure, the rupee could extend its gains in the near term, he said. “However, global risk sentiment and oil price movements will play a crucial role in determining the next leg of the rupee’s trajectory.“

 

“Given the current sentiment, the USD/INR pair is expected to trade within the 86.80-87.40 range in the near to medium term,” Pabari said. A breakout beyond this band could trigger an additional move of 30-50 paise in the same direction, keeping market participants on high alert for potential volatility, he said.

 

Meanwhile, India's Forex reserves recorded their strongest increase in more than 3 years by $15.37 billion to reach $653.97 billion for the week ending 7th March. This was a result of the $ 10 billion swap conducted by RBI along with higher revaluation of other global currencies, according to Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.  

 

Meanwhile, all eyes will be on Jerome Powell this week as he faces the tricky task of assuring investors the economy remains on solid footing while also conveying policymakers stand ready to step in if necessary. The Fed is widely expected to leave interest rates steady when they meet March 18-19, but traders now see high odds of three rate cuts this year, most likely beginning in June, according to Bloomberg.  With global cues playing a significant role, Rupee movement will remain sensitive to any policy shifts by the Fed and broader economic indicators, according to Jateen Trivedi, VP research analyst, commodity and currency, LKP Securities. "The rupee range is expected between 86.20-86.90, with momentum favoring stability unless major surprises emerge from US data or policy decisions."