Currency Market Today: Rupee settles at over 2-month high of 83.10 on strong FPI equity inflows

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The rupee settled at an over two-month high of 83.10 against the dollar on Friday, its highest level since March 19, largely led by sustained dollar sales on the back of heavy FPI inflows.

After opening at a six-week high of 83.26, FPI dollar sales led to sustained momentum in the rupee with multiple stop-losses on long dollar bets being triggered through the day. The domestic currency rose 23 bps up to an intraday high of 83.03, the biggest intraday jump seen in over five months. However, it pared some gains in the second half of the day led by dollar buys by a few importers and likely RBI intervention to arrest a sharp rise.

The rupee ended 0.2 per cent compared with 83.28 per dollar on May 23. Money markets were shut on May 23 for Buddha Purnima. For the week, the rupee recorded a gain of 0.3 per cent against the US dollar–the biggest weekly increase in over five months.

Analysts expect the rupee to trade in the range of 82.80 and 83.35 in the coming days.

“The rupee traded higher by 18 paise. Despite the dollar index trading higher in recent days, the rupee showed resilience due to significant economic development in India and substantial fund inflows,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities.

The majority of the inflows, estimated to be around $2.5 billion, were seen being led by MSCI’s portfolio rebalancing. In its quarterly review, MSCI added 13 companies to its global standard indices and 29 companies to global small-cap indices. It also removed three companies – One97 Communications, Berger Paints and Indraprastha Gas–from its global standard indices and 15 companies from global small-cap indices, effective close of business hours on May 31. 

The gains in the currency were also aided by fall in crude oil prices and improved economic sentiment following RBI’s ₹2.11 lakh crore record dividend to the government for FY23. Record FX reserves of $648.7 billion as of May 17 and expectations of flows of much as $40 billion expected from the inclusion of Indian bonds in the JPMorgan Chase & Co’s emerging-market index from June are also boosting economic sentiment, leading the rupee to gain against the dollar index even as most other Asian currencies declined 0.1-0.5 per cent.

The dollar index has been rising after minutes of the US Federal Reserve’s last meeting suggested the Fed may keep rates higher for a longer period due to sustained inflationary pressures. Further, data showing business activity in the US rose to the highest level in over two years in May, also supported the greenback.