The Indian rupee experienced an upswing, reaching its peak level for the year, influenced by anticipated equity inflows, increased hedging-related dollar sales from local exporters, and the unwinding of bearish positions. The currency appreciated by 0.5%, hitting 84.78 per dollar, in alignment with the rise in Asian currencies, which saw an increase of up to 0.8% during the day.
Optimism around a potential trade agreement between India and the U.S. also contributed to the rupee's performance. U.S. President Donald Trump expressed confidence in the progress of tariff discussions with India, stating, "talks with India on tariffs were coming along great," and anticipated a deal between the two countries.
The rupee's momentum was further supported by its rise above a key technical resistance level near the 200-day moving average. A trader from a brokerage noted, "Stop losses have hit for many banks and a lot of dollar-long positions have seen reversal, with 84.70-84.75 levels seen as the next crucial support level (for USD/INR)."
Foreign portfolio inflows into Indian equities over the past two weeks have bolstered the local currency, which is on track for a 0.8% gain for the month. Exporters have been active in hedging their dollar receivables, while demand from importers has remained subdued, as many had already covered their liabilities during the previous month's rupee rally, according to an FX salesperson at a bank.
The rupee's performance in March marked a rise of over 2%, its strongest monthly performance since November 2018. MUFG Bank noted, "A weaker US dollar, along with the market becoming more dovish on the US rates outlook, could provide some support for several Asian currencies."
However, some traders warned of potential reversals for the rupee if cross-border tensions with Pakistan escalate, following a recent militant attack in Kashmir.
Source: Reuters