Rupee appreciates 0.2% tracking Asian peers, dollar index softens

Rupee appreciated by 0.2 per cent against the US dollar on Monday, tracking gains in its Asian peers. Additionally, the MSCI November rebalancing took effect, potentially ushering in foreign institutional investor (FII) inflows of approximately $2.5 billion into the Indian market, further boosting market dynamics.

 

The local currency settled at Rs 84.29 per dollar on Monday, against Rs 84.46 per dollar on Friday.

 

Market participants said the Reserve Bank of India (RBI) intervened in the foreign exchange market via dollar buys to contain excess volatility. “There were some inflows and the dollar index was softer,” said a dealer at a state-owned bank. “The RBI was there buying dollars in small amounts,” he added.

 

The dollar index edged lower to 106.90 following the appointment of Scott Bessent as US Treasury Secretary. The yield on the benchmark 10-year US Treasury bond dipped to 4.34 per cent, while shorter-term yields remained elevated.

 

Foreign exchange dealers said that while the rupee shows potential for appreciation, several factors could limit its gains. Elevated dollar index levels, driven by Europe’s economic weakness and strong US economic data, along with a nearly 5 per cent rise in oil prices over the past week due to escalating tensions in the Russia-Ukraine conflict, presents significant challenges. These developments are likely to pressure India’s trade balance, hindering sustained rupee appreciation.

 

“The dollar-rupee pair is anticipated to trade within a defined range in the medium term, with support at 83.80 and resistance around 84.50. The overall bias, however, tilts toward the downside,” said Amit Pabari, managing director at CR Forex.