A weak Dollar, decline in crude oil prices, and FPI inflows into the equity market turned the risk sentiment favourable towards the Rupee on Tuesday. The Indian unit closed at its highest level against the Dollar in five weeks.

The Rupee (INR) closed below 79 to the Dollar (USD) mark at 78.7175, up about 31 paise against the previous close of 79.025. .Since March-end 2022, India’s forex reserves have declined by $35.749 billion, partly due to RBI’s aggressive intervention in the market to smooth volatility in the exchange rate movement.

Overall, INR has appreciated 114 paise in the last seven trading sessions (60 paise last week and 54 paise this week so far) in the backdrop of the possibility that the US Fed may turn less hawkish due to contraction in growth in two successive quarters, Reserve Bank of India’s aggressive intervention (Dollar sales) and exporters bringing in Dollars.

Opening stronger at 78.95 per Dollar vis-a-vis previous close of 79.025, the Indian unit touched a high and low of 78.49 and 78.9550, respectively.

“The market expected 78.80 level to hold, but continuous unwinding of offshore (non-deliverable forward) positions in the wake of weak Dollar Index, improvement in risk sentiment towards India, and reversal in FPI flows, saw the Rupee hit 78.49.

“However, demand for Dollars from importers and sabre-rattling by China in the backdrop of the scheduled visit by US House of Representatives Speaker Nancy Pelosi to Taiwan pushed the Rupee to 78.7175,” said a dealer with a private sector bank.

Amit Pabari, Managing Director, CR Forex Advisors, observed that the factors currently favoring the rupee include the return of FPI’s into Indian equity market, oil prices being stable to negative, softness in the dollar, and better growth prospects of the Indian economy compared to the developed economies.

He noted that as majority of the market’s punt was long on USD, short covering of the same resulted in stop-losses getting triggered.

Per Pabari’s assessment, if Dollar inflows continue and rupee breaks the 78.50 level, the USDINR pair will move towards 77.80 in the short-term where it is likely to bottom out and resume it’s upward journey towards 79.50 to 80.00 levels.

Kotak Mahindra Bank, in a report, said: “Improvement in FPI flows in July has provided relief to INR...Notably, RBI has been aggressively intervening lately to strongly signal averting an overshoot of the 80-mark of USDINR. In the near term, with softening global yields, USD and crude oil prices, we expect USDINR range to shift towards 78.50- 80.”

Global currencies have edged up against a weaker dollar. DXY index fell amidst expectations that the Fed may slow down the pace of monetary policy tightening going forward, Bank of Baroda said in its fortnightly report.

As per the report, Brazilian Real strengthened 5.1 per cent, followed by Japanese Yen (3.7 per cent), Australian Dollar (2.5 per cent) British Pound Sterling (1.8 per cent) in the fortnight ended July 29. INR too ended higher by 0.9 per cent.

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