Rupee’s Surge to 10-Week High

Underlying Drivers

• Foreign Inflows:
  • Sustained foreign institutional investor (FII) inflows into equities and debt are the strongest near-term driver.
  • This indicates growing investor confidence in India’s macro stability and growth outlook.
• Trade & Reserves
  • Strong trade data signals improving export performance or controlled imports, reducing pressure on the current account.
  • RBI’s active intervention through USD/INR swaps suggests a strategic approach to stabilize currency volatility and build reserves.
• Global Factors
  • The Fed’s decision to hold rates steady and signal potential future rate cuts weakens the dollar globally, providing additional support to emerging market currencies like the rupee.

Market Behavior and Sentiment

• Currency Strength vs. Asian Peers:
  • The rupee has outperformed other Asian currencies this month, indicating India’s relatively stronger position amid global uncertainties.
• Investor Sentiment:
  • Increasing FII participation reflects confidence in India’s market fundamentals, monetary stability, and political clarity heading into 2025.
• RBI’s Role:
  • The RBI appears to be using proactive, rather than reactive, interventions — showing it is not just defending the rupee but guiding it to a stable, appreciated zone.

Equity Market Linkages

• Equity markets are mirroring currency strength, with the NSE Nifty extending gains for five consecutive sessions.
• The sharp surge in cash market volumes (+53%) shows robust retail and institutional participation, signaling broader market optimism.

Forward Outlook

• Support/Resistance Levels:
  • Rupee likely to find support at 85.70 and face resistance near 86.45.
• Risks:
  • Any reversal in FII flows or geopolitical tensions could quickly reverse the gains.
• Opportunities:
  • Continued global dollar softness, robust Indian growth data, and stable oil prices could extend the rupee’s rally.