The Indian rupee strengthened to 96.18 against the US dollar in early Friday trade, rising 18 paise from its previous close of 96.36, as reported by ABP Live. At the interbank foreign exchange market, the rupee opened at 96.30 against the US dollar, then touched 96.18 in early trade, showing continued resilience amid improving market sentiment. On Thursday, the rupee rebounded 50 paise from its all-time closing low to settle at 96.36 against the US dollar, demonstrating the currency's recovery momentum. The data further shed light on the domestic currency, which has lost 2.2% of its value in the last one month, and nearly 6% of its value in the past three months amid heightened geopolitical risks in the market.
Brent crude oil cooled near the USD 104 mark, trading up 1.59% at USD 104.21 per barrel in futures trade, as reported by ABP Live. Forex traders said markets found comfort after comments from US Secretary of State Marco Rubio hinted that diplomatic talks linked to the Iran situation were moving in a constructive direction. Although Rubio warned that he does not want to be 'overly optimistic,' the comments were enough to calm markets temporarily, reducing immediate pressure on the rupee. India's merchandise trade deficit expanded to $28.38 billion in April, driven in large part by a jump in crude oil imports to a six-month high. Brent crude traded near $105 a barrel overnight, as investors remained uncertain about the prospects of an US-Iran peace deal, with MUFG Bank noting that tentative optimism around a potential agreement was supporting risk sentiment.
The rupee's recovery is being supported by growing confidence around RBI's planned $5 billion buy-sell swap auction on May 26, according to CR Forex Advisors MD Amit Pabari. "Another major reason behind the rupee's recovery is growing confidence around RBI's planned USD 5 billion buy-sell swap auction on 26th May. The move is expected to inject more rupee liquidity into the banking system and improve RBI's ability to manage excessive currency volatility," Pabari said. This reinforces market confidence that the central bank remains prepared to actively smooth volatility if global conditions deteriorate further. The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 99.24, down 0.01%, as reported by ABP Live. "Any supportive measures like RBI swaps or positive deal flows could strengthen the rupee, while absence of such triggers may gradually push the pair towards 97.00 levels," Pabari added, noting that geopolitical tensions remain the key risk factor.
The US dollar index remains firmly above the 99 mark, currently trading near 99.25, marking a six-week high, according to Business Standard. Elevated crude oil prices and ensuing higher inflation and interest rate scenario is keeping the dollar index afloat. Although the US dollar was trading lower, the prices remained elevated near the 100 psychological mark as the tensions remained heightened over the West Asia conflict amid risks of further escalation of the war. In situations of heightened risks, global investors and currency traders are likely to pull out money from their emerging market bets, as they shift their investments into other safe-haven assets like gold or the benchmark US dollar. The one-year forward market rate for the rupee touched the crucial 100/USD mark on Wednesday, indicating that currency markets are pricing in a weakening bias for the USD/INR pair over the next 12 months.
Commerce and Industry Minister Piyush Goyal on Thursday said the government is considering several steps to contain the widening Current Account Deficit (CAD) amid a weakening rupee and widening trade deficit, as reported by The Hindu BusinessLine. On the domestic equity market front, Sensex climbed 332.39 points to 75,507.09 in early trade, while the Nifty was trading up 84.60 points to 23,747.40, according to ABP Live. Foreign Institutional Investors offloaded equities worth ₹1,891.21 crore on a net basis on Thursday, according to exchange data. Despite currency pressures, Foreign Institutional Investors remained net buyers for the second straight session, purchasing equities worth ₹1,329.17 crore on Friday, as reported by exchange data. India's forex reserves jumped USD 6.295 billion to USD 696.988 billion during the week ended May 8, according to the Reserve Bank. Trying to prevent this thinning of capital flows will require 'structural reforms, which remains the critical test,' said Anubhuti Sahay of Standard Chartered. A sustained close below 94.80 would be needed to signal a broader trend reversal in the rupee, Pabari noted.
