After ending at 83.91 on August 26 instead of 83.95 roughly a week earlier, the Indian rupee has somewhat appreciated over the previous trading days. Though importers’ dollar demand and foreign portfolio withdrawals from Indian equities (totaling USD 1.5 billion as of August 26) have restricted the rupee’s gains, the currency is seeing some support from the declining dollar.
The rupee has therefore barely appreciated by 0.1% in the last week. Other Asian currencies, however, have increased by more than 1.9%, the South Korean won by 1.6%, the Indonesian rupiah by 1.7%, the Chinese yuan by 0.6%, and the Thai baht and Philippine peso by 1.9% within the same time frame.
The dollar index dropped from over 102 a week ago to around 100.9, an eight-month low, as a result of the Fed’s dovish remarks. Fed Chair Powell said in his Jackson Hole speech that the moment has come for the Fed to start lowering interest rates because the risks to employment on the downside have increased while the risks to inflation on the upside have decreased.
Investor expectations regarding the extent of Fed rate cuts will be greatly influenced by the US PCE inflation data, which is the Fed’s preferred inflation measure and is due this Friday, as well as the August job market report that will be released the following week.
Shortly, we anticipate that the rupee will trade between 83.60 and 84.10. Rising oil prices could put some strain on the economy, even though the impending Fed rate cuts might offer help.
Expectations of a reduction in Fed rates and escalating tensions in the Middle East have propelled Brent crude oil beyond USD 80 per barrel, having hovered around USD 76 per barrel a week ago. Inflows from the MSCI equities index rebalance, however, might provide the rupee with some support.
