Image Credits - CNBC TV 18
The Indian rupee continued its stellar run, marking its fourth consecutive day of appreciation against the U.S. dollar on Monday, January 9, 2024. This resilient streak can be attributed to a confluence of factors – buoyant foreign inflows, proactive intervention by the Reserve Bank of India (RBI), and robust domestic economic data.
At the close of Monday’s trading session, the rupee settled at 83.05 to the dollar, showcasing a modest but noteworthy strengthening of 0.13% from its previous closing of 83.16. This upward trajectory further consolidated the rupee’s gains for the first week of 2024, during which it received a shot in the arm from nearly $763 million in foreign inflows.
Analysts remain optimistic about the rupee’s prospects in the near term, citing the potential for further appreciation. They anticipate sustained foreign inflows to continue fueling the currency’s ascent, buoyed by expectations of additional capital injections and further interventions by the RBI. Additionally, India’s strong macroeconomic fundamentals, characterized by healthy growth rates and resilient domestic consumption, contribute to the positive sentiment surrounding the rupee.
However, a crucial data point on the horizon could cast a shadow over the rupee’s rally – the upcoming U.S. consumer price index (CPI) inflation data due on Thursday. Analysts predict a slight increase in CPI, potentially keeping the inflation index well above the US Federal Reserve’s target of 2%. This could reignite concerns about interest rate hikes in the US, prompting capital flight from emerging markets like India and impacting the rupee.
Despite this potential headwind, analysts largely remain confident in the rupee’s ability to weather the storm. “While the U.S. CPI data might cause some temporary volatility, the rupee’s underlying fundamentals are strong,” explains Shweta Singh, research analyst at Finvest Securities. “The continued flow of foreign investment, coupled with the RBI’s proactive approach, should provide enough cushion to absorb any external shocks.”