Rupee Declines in Tandem with Other Asian Currencies, Yet Equity Inflows Limit Losses


On Wednesday, the Indian rupee saw a decrease, largely due to a slide in Asian currencies, particularly the Chinese yuan. This depreciation, however, was somewhat countered by strong equity inflows.

Date: July 19, 2023

Place: New Delhi, India

The value of the rupee fell to 82.0800 against the U.S. dollar by 11.07 a.m. IST, a slight decline from 82.03 the previous day. Contributing to this, the offshore yuan dipped below 7.2150 against the dollar, marking its fourth consecutive daily fall. Concerns over China’s economic growth triggered this decrease, with at least four brokerages lowering their GDP predictions for China in 2023 this week.

According to Anindya Banerjee, the head of research for FX and interest rates at Kotak Securities, the USD/CNH pair’s renewed rise can have a “significant impact” on other Asian currencies, including the Indian rupee. Nevertheless, he added, the robust inflow of foreign portfolio investment (FPI) could provide support for the rupee. As a result, the USD INR is forecasted to trade within a range of 81.90 to 82.22/25 levels.

This month has seen more than $4 billion of foreign investments injected into Indian shares, NSDL data shows, and Indian equity indicators are at all-time highs.

On another note, the dollar index has risen slightly to 100.04. The labor market’s stability will be assessed with the U.S. initial jobless claims data due on Thursday. Next week, the Federal Reserve will announce its decision on interest rates.

Following U.S. inflation data, market predictions suggest that the Federal Reserve will increase the base rate by 25 basis points (bps) next week, then subsequently enter a longer pause. As it’s believed that the Fed is nearing the end of its rate-hike cycle, this expectation has bolstered risk assets and brought near-maturity U.S. yields down from recent peaks.

Additionally, rupee forward premiums experienced a decrease, with the 1-year implied yield falling two bps. Premiums have remained relatively stable this week, following a noticeable rise last week.


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The Financial express, Reuters, The Print

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