Revival in foreign flows to back Indian rupee, dollar strength offers resistance
- The Indian rupee is expected to open in the 93.68 to 93.74 range, having settled at 93.69 to the dollar on Wednesday, its highest level since April
The Indian rupee holds steady, reaching its strongest since April, buoyed by substantial foreign equity inflows. Investors are diversifying into India from AI-related tech, counteracting a strong dollar.
- Significant foreign equity inflows boosting the Indian rupee.
- Investor diversification from AI-related tech to India.
- The strong dollar and Federal Reserve rate hike expectations.
MUMBAI: The Indian rupee is set to open largely flat on Thursday, with the ongoing revival in foreign equity inflows providing a counterweight to a resurgent dollar that has advanced to a one-month high.
The Indian rupee is expected to open in the 93.68 to 93.74 range, having settled at 93.69 to the dollar on Wednesday, its highest level since April.
Foreign investors poured $1.34 billion into Indian equities on Wednesday, per provisional data, taking month-to-date inflows to just shy of the $8 billion mark.
The scale of the reversal in foreign flows has been striking. Fears of tighter US restrictions on AI data-centre construction following the Democratic Party election win have unsettled the AI trade, prompting investors to pare exposure to semiconductor-heavy markets and redirect capital towards India, which is being seen as a diversification play.
Before the November resurgence, foreign investors had pulled more than $30 billion from Indian equities so far this year.
This has provided the rupee a much-needed lift, reinforcing the Reserve Bank of India’s efforts to stabilise the currency.
A retreat in oil prices has been an additional tailwind. Brent crude is hovering around $92 a barrel, down from a high of $118 less than two weeks ago.
The rupee’s narrative has shifted “decisively”, with the focus now turning to how durable the turnaround in sentiment and foreign inflows will prove to be, a currency trader at a bank said.
Dollar in favour
The dollar index held near a one-month high against major peers in Asian trading on Thursday, supported by mounting expectations of a Federal Reserve rate hike.
Traders ramped up bets of further Fed tightening following higher-than-expected October inflation data and a series of hawkish remarks from US central bank officials.