 "Rupee sees steepest rise since Nov. 2022; ends 78 paise stronger at 85.22/$")
The Indian rupee witnessed its sharpest single-day appreciation since November 2022 on Friday, buoyed by likely foreign inflows, a weaker US dollar, and softening crude oil prices.
The domestic currency closed 78 paise stronger, settling at 85.22 against the US dollar, after ending at 86.00 on Thursday. During the session, it had briefly weakened to 86.04 before staging a 1.03 per cent gain, according to Bloomberg.
Earlier in the week, the currency had breached the 86 mark for the first time in over a month. The rupee has depreciated 0.85 per cent so far this month.
The Indian Rupee’s Real Effective Exchange Rate (REER) eased to 100.8, falling by 0.7 points from 101.5 in the previous month and down sharply from a recent high of 108.14, indicating that the rupee is now approaching a fair valuation, according to Amit Pabari, managing director of CR Forex Advisors. "This correction is expected to boost the export competitiveness of Indian goods, providing support to the currency amid global uncertainties."
Attention now shifts to the Reserve Bank of India as the central bank is expected to transfer a surplus between ₹2.2 trillion and ₹3.1 trillion to the government as a dividend for the financial year 2024-25 (FY25).
The US House on Thursday passed a sweeping tax bill that adds $3.8 trillion to the US debt over the next decade, worsening fiscal worries.
Despite its recent strength, the Dollar Index is showing signs of fatigue as mounting US fiscal concerns weigh on sentiment, Pabari said. The dollar index, which measures the greenback against a basket of six major currencies, was down 0.6 per cent at 99.36.
Foreign Institutional Investors (FIIs) could potentially continue selling due to a narrowing bond yield differential between Indian and US 10-year bonds, Pabari said. This narrowing spread – last seen in July 2004 – is turning India less attractive for carry trades, compounding rupee pressure.
In commodities, crude oil prices continued to fall amid reports that OPEC+ is discussing a production increase for July. Brent crude price was down 0.20 per cent to $64.31 per barrel, while WTI crude prices were 0.21 per cent lower at 61.07, as of 3:40 PM IST.