The Indian Rupee has shown remarkable resilience in the currency market since February 10, with expectations that this trend could continue into the next week. The trajectory of the Rupee is significantly influenced by fluctuations in the Dollar Index. Financial analysts suggest that despite the Rupee’s gradual but positive movement, developments in the US economy—punctuated by disappointing economic indicators—will play a critical role in determining its performance. Following February 10, the Rupee has appreciated around 1.5% from its lifetime low, indicating a cautious optimism among experts as they monitor the evolving dollar landscape.
Possible Decline in the Dollar
Recent economic data from the United States has underperformed expectations, resulting in the largest decline in American stock markets in over two months. Reports reveal a 4.9% drop in existing home sales from December to January, attributed to high lending rates and elevated home prices. Additionally, consumer confidence, measured by the University of Michigan, has seen a significant decline from January to February, with long-term inflation expectations reaching their highest levels since 1995. Such trends indicate a potential further decrease in the Dollar Index in the coming week.
Dollar Index Drops Below 107
Currently, the Dollar Index is trading below the 107 mark. On Friday, it closed at 106.64, showcasing a flat trend over the past week, while a 0.75% drop has been noted over the last month. Over the past three months, a decline of 0.85% has been recorded. Year-to-date, the Dollar is down by 1.7%, although it has appreciated by 2.6% over the last year. Analysts predict the Dollar Index will fluctuate between 105.80 and 106.20 in the upcoming week, reflecting a cautious outlook for the US currency.
Potential Appreciation of the Rupee
The Rupee may experience further appreciation in the coming week, primarily benefiting from the anticipated decrease in the Dollar Index. Experts cite this potential rise as largely dependent on the Dollar’s trajectory rather than other influencing factors. Currently, the Rupee stands at 86.68 against the Dollar, recovering from a near 88 level on February 10, marking over 1.5% recovery subsequent to this low.
Current Rupee Levels
In the interbank foreign currency exchange market, the Rupee closed at 86.68 per Dollar, down by four paise. Continuous capital outflows from foreign institutional investors and improvements in the US Dollar Index have contributed to this downturn. Observers noted that the dip in the domestic market alongside improvements in the Dollar Index caused a setback for the Indian Rupee. However, the easing of crude oil prices offered some stability against further declines.
Market Predictions from Experts
Anuj Gupta, Head of Currency Commodity at HDFC Securities, emphasized that the Rupee’s performance next week will largely depend on the Dollar’s movement, citing weaker US economic indicators as a pivotal concern. He expressed caution regarding potential downward pressure on the Indian stock market, which could further influence the Rupee’s value. Similarly, Anuj Chaudhary, a research analyst at Mirae Asset Sharekhan, indicated that a combination of weakness in the domestic market and Foreign Institutional Investor (FII) selling could keep the Rupee on a negative trajectory. Nevertheless, any intervention by the Reserve Bank of India (RBI) or a dip in crude oil prices might cushion the Rupee at lower levels. He estimated that the USD-INR pair could trade between 86.50 and 87 going forward.