Indian Rupee Gains Strength Against US Dollar Amid Market Dynamics

The Indian Rupee appreciated against the US Dollar for the fifth consecutive day, closing at 86.57 amid Dollar weakness and ongoing foreign investor selling. This positive trend marks the longest gaining streak in six months. Liquidity challenges persist in the banking system, while crude oil prices increased amid geopolitical tensions, contributing to economic fluctuations.

The Indian Rupee closed stronger against the US Dollar for the fifth consecutive session on Tuesday, marking its longest winning streak in six months. It ended 23 paise stronger at 86.57, up from 86.80 the previous day, as reported by Bloomberg data. This upward trend signifies a 1.08 percent gain for the Rupee in March, reversing a five-month decline amidst foreign portfolio investors’ ongoing selling activity.

Despite foreign portfolio investors selling a significant Rs 1.43 trillion this year, the Dollar index, which evaluates the Dollar’s strength against a basket of currencies, decreased by 0.04 percent to 103.32. This decline is a notable 3.6 percent drop within the month, the steepest since November 2022, contributing to the Rupee’s robust performance.

India’s merchandise trade deficit fell to a three-and-a-half-year low of $14.05 billion in February, attributed to contractions in both exports and imports spurred by declining global petroleum prices amid economic uncertainties. This backdrop may further enhance the Rupee’s position in the international currency landscape.

Simultaneously, crude oil prices continued their upward trajectory for the third consecutive day, with Brent crude rising 1.45 percent to $72.10 per barrel and WTI crude increasing 1.55 percent to $68.63 per barrel. Escalating tensions in the Middle East have contributed to this price rise.

The Indian banking system remains under a liquidity shortfall of approximately Rs 2 trillion as of March 16, leading analysts to predict that the Reserve Bank of India may have to absorb substantial inflows to manage liquidity and reinforce foreign exchange reserves.

In market developments, the Indian benchmark indices, Nifty and Sensex, rose over 1 percent on Tuesday, driven by positive global sentiment along with strong domestic institutional investments.

In summary, the Indian Rupee has demonstrated remarkable resilience, achieving its longest winning streak in six months against the US Dollar. Despite ongoing foreign portfolio selling amid a liquidity shortfall in the banking system, a decrease in the Dollar’s strength and a reduction in the trade deficit have positively influenced the Rupee’s performance. Additionally, rising crude oil prices and buoyed market indices reflect the dynamic nature of the economic landscape.

Original Source: www.business-standard.com