What’s going on here?
The Indian rupee weakened slightly on Wednesday but stayed above its all-time low, closing at 83.9525 against the US dollar.
What does this mean?
Despite strong dollar demand from importers and limited portfolio flows, interventions by state-run banks and the Reserve Bank of India (RBI) kept the rupee from falling to the critical level of 84. Overseas investors selling $1.3 billion in local stocks on a net basis added pressure. The rupee often starts strong, losing ground later in the session as dollar buying increases. Meanwhile, the broader market saw the dollar index rise by 0.2% to 100.8, with most Asian currencies slipping.
Why should I care?
For markets: Rupee treading water amid volatility.
The Indian rupee has been under pressure throughout August, hovering between 83.65 and its record low of 83.9725. With overseas investors pulling out $1.3 billion from local stocks, the market dynamic shows clear strain. However, traders anticipate potential respite later in the week, with up to $3 billion of inflows related to changes in the MSCI index, which tracks emerging market equities.
The bigger picture: Global forces at play.
The US personal consumption expenditure (PCE) inflation data, expected on Friday, is a critical indicator for the Federal Reserve’s upcoming policy decisions. The results may influence whether the Fed opts for a 25 or 50 basis point rate cut in its September meeting, impacting global financial markets and currency valuations. Strong dollar demand and rising dollar index trends are affecting not just the INR but other Asian currencies like the KRW, highlighting the interconnected nature of global markets.
