The rupee showed strength against the US dollar after weeks of weakness, and experts believe this turnaround is due to a mix of market factors, central bank action, and improving global trade sentiment.
Abhishek Goenka, Founder and CEO of India Forex and Asset Management, said that the rupee had remained weak earlier even when the dollar had softened globally.
“The rupee had weakened despite the fact that the dollar had weakened globally. And we were the worst performer. Maybe this was because of the tariff situation that India was facing, the maximum amount of tariffs that were going on,” he said.
He added that based on the real effective exchange rate, which measures the value of the rupee against a basket of other major currencies, the Indian currency had been weaker than it should have been. “The fair value calculations could be close to $87 to $1. The levels of $89 were something which was very important,” Goenka explained.
He noted that the Reserve Bank of India (RBI) intervened heavily in the forex market recently to control speculation. “With heavy intervention seen by RBI yesterday, there was speculation in the market that there were long positions built on the US dollar against the rupee, which RBI crushed yesterday,” he said.
Another factor that supported the rupee, according to Goenka, was the recent news of a possible settlement between India and the United States on Russian oil. “If there is some truth in that statement, that is also adding comfort to the rupee. And that’s the reason it’s been appreciating since yesterday,” he added.
OUTLOOK FOR THE RUPEE
Goenka also shared his outlook on the rupee’s performance in the coming weeks.
He said the domestic currency could stay stable if a trade deal between India and the US goes through. “If we have a trade deal, then definitely, the dollar flows which were not hitting the interbank market will start to come in. Exporters were kind of away from the market because they were not getting certainty in terms of their orders and deliveries,” he explained.
Goenka said that while importers had been active in buying dollars, exporters were holding back because of uncertainty. However, once trade clarity improves, exporters are likely to start selling dollars, which could further strengthen the rupee. “With that clarity coming in, just in case we get one more second clarity of a trade deal, then the exporters, who are not covered above 88 levels, will suddenly come into the market and start selling. That will push the rupee even stronger. So, my feeling is that 87 to a dollar should be a good level to get stabilised. And we should not see immediate depreciation,” he said.
RBI’S VIEW ON GOLD AND ITS IMPACT
Separately, the Reserve Bank of India governor Sanjay Malhotra addressed concerns about whether a drop in gold prices could affect India’s reserves or household budgets. Speaking at an IMF event, he said there was no major risk.
“Any depreciation, because the mix is so diverse, I cannot divulge the numbers to you for obvious reasons. It does not have very high implications for us. And I do not think it has implications for households, because mostly it is bought in households. It has great sentimental value, as you are saying. I have not seen households actually kind of selling gold or using it for their needs,” Malhotra said.
With strong central bank action, hopes of an India-US trade understanding, and improving currency fundamentals, experts believe the rupee may continue to trade in a stronger range in the near term, offering some relief after months of volatility.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
