Indian Rupee Near 83.5 per USD Amid Fed Rate Cut Expectations and Asian Currency Pressures
Team FS
04/Jul/2024

Key Points:
Indian rupee trades near 83.5 per USD, recovering from late June's record low of 83.7.
Fed rate cut expectations due to softer US economic data support Asian currencies.
RBI refrains from aggressive rupee defense as robust Indian growth outlook supports foreign investment.
The Indian rupee has been trading around 83.5 per USD, showing signs of recovery after testing a record low of 83.7 in late June. This recovery comes as softer economic data from the US has reinforced expectations of Federal Reserve rate cuts, providing some relief for Asian currencies, including the rupee.
The preference for the US dollar in Asia, driven by the relative economic resilience of the US, has led to sharp selling pressure on currencies like the Japanese yen and the South Korean won. Additionally, concerns over a weakening Chinese economy have prompted the People's Bank of China (PBoC) to continuously weaken the yuan through its daily fixes.
These developments have limited the Reserve Bank of India's (RBI) ability to support the rupee against a strong dollar. Typically, the RBI intervenes in the foreign exchange market to prevent excessive volatility and to maintain competitiveness of Indian exports against Asian rivals. However, the robust growth outlook for India and bullish expectations for foreign investment have allowed the central bank to refrain from aggressive dollar-buying activities to defend the rupee.
Illustrating this stance is the rise in foreign currency reserves held by the RBI, reaching a record high in June. The accumulation of reserves reflects the central bank's confidence in India's economic fundamentals and its readiness to manage external shocks effectively without compromising the rupee's stability excessively.
In summary, the Indian rupee trading near 83.5 per USD reflects the impact of global economic trends, particularly the expectations surrounding Federal Reserve rate cuts and the resulting pressures on Asian currencies. Despite challenges posed by a strong dollar and regional economic dynamics, India's favorable growth prospects and attractive investment environment continue to support investor confidence and mitigate excessive volatility in the currency markets. As global economic conditions evolve, especially in relation to US monetary policy and Asian economic performance, the trajectory of the Indian rupee will remain closely watched by market participants and policymakers alike.
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