Indian Rupee Reaches Seven-Month Closing High Supported by FPI Inflows and Lower Crude Prices

The Indian rupee strengthened to a seven-month closing high against the US dollar on Wednesday, supported by foreign inflows and lower crude oil prices. Buoyed by robust foreign portfolio investor inflows into the equity markets and a decline in crude oil prices, the local currency closed the session near a seven-month high.

The Indian currency closed at 93.69 per US Dollar, marking a gain of 24 paise over its previous close of 93.93. During intraday trading, the currency tested a high of 93.62 and a low of 93.87.

Dilip Parmar, Senior Research Analyst at HDFC Securities, noted that the rupee gained ground due to softening crude oil prices, strong foreign institutional inflows, and the absence of central bank intervention amid a prevailing risk-on sentiment. However, a rebound in the greenback following Tuesday's inflation figures limited further appreciation of the local currency.

"Participants will eye on India's CPI data, scheduled tomorrow for the next leg of move in the Rupee. Over the near term, spot USDINR encounters resistance at 94.10, with support at 93.50," Parmar stated.

Meanwhile, a special report by Axis Bank Economic Research Division, authored by Senior Vice President Tanay Dalal and Manager Anshika Singh, noted that more fragmented artificial intelligence regulation and slower expansion in the United States could potentially bring some lost savings back to India. A reversal of the past 12 months' foreign portfolio investor outflows could bring the financeable current account deficit back to 0.8 percent of gross domestic product and move fair value closer.

However, the report added that forex adequacy remains low, and rebuilding it is likely to keep the rupee weaker than its fair value. Short maturities in the three-to-five-year bucket remain heavy, and lower crude oil prices might not make a significant difference, as the rupee initially began to lose value when the current account deficit was low.

"Continued squeezing of global savings owing to fading of the peace dividend also limits availability of savings to chase India assets," the report noted, adding that the research division maintains its near-term forecast targeting the rupee at 100 by June 2027 while monitoring for durable market shifts.

In the domestic debt market, yields on government securities hardened, tracking rising US Treasury yields amid the decline in crude oil prices. Yields on the benchmark 10-year Government Security rose by 6 basis points to 7.21 percent, up from 7.15 percent previously. US Treasury yields had climbed after October consumer price index data came in at 0.4 percent, surpassing the expected 0.3 percent.

"The recent strengthening of the Indian rupee to a seven-month high highlights the impact of foreign portfolio inflows and softening crude oil prices on domestic currency movements. While near-term sentiment remains supported by these capital inflows and easing commodity prices, businesses and entrepreneurs must remain mindful of broader macroeconomic indicators, including upcoming CPI data and foreign exchange adequacy trends, when planning long-term financial strategies." — Dr. Shishir Gupta, Founder & CEO, StartupLanes