With the Indian Rupee gaining over 1% against the US Dollar, the big question is - can this momentum be sustained? The Rupee's sharp rebound from its record low has raised hopes, but will it be enough to shed its weakest Asian currency tag?
The Indian Rupee closed at 90.0963, its highest gain since May 23, after the Reserve Bank of India's (RBI) aggressive USD selling. However, the FOREX market believes this pullback won't be enough for the Rupee to regain its lost ground.
The Rupee has slipped over 6% in YTD, making it one of the weakest major currencies globally. Anindya Banerjee, Head of Currency & Commodity Research at Kotak Securities, attributes this to three key factors: sentiment, capital flows, and the global macro backdrop.
The delay in the India-US trade deal has fueled Foreign Institutional Investors' (FIIs) outflow, with close to USD 2.7 billion being pulled out in the first two weeks of December alone. Sandeep Pandey, Co-founder of Basav Capital, believes that FIIs' selling is the major reason for the sharp fall in the Indian Rupee.
In the Indian market context, the Nifty and Sensex have shown resilience despite the Rupee's volatility. Historically, the Rupee has depreciated during times of global trade wars, which has supported export competitiveness. However, the current trend is being driven by sentiment and capital flows, rather than a strong economic fundamentals.
The Bank Nifty, which is closely linked to the Rupee's performance, has shown a negative correlation in recent times. This suggests that traders are becoming increasingly risk-averse, preferring to sell on rallies rather than buy on dips.
The psychological level of 91.00-92.00 is expected to act as a strong resistance for the USD-INR pair. A sustained move above this region could open the door to the next structural target zone of 94.00-96.00.
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Disclaimer: This article is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not the author. We advise investors to check with certified experts before making any investment decisions.
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