Rupee Strengthens to 88.72 Against Dollar Amid Market Optimism

The Indian rupee appreciated by 3 paise to reach 88.72 against the US dollar in early trading on October 3, 2023. This increase is largely attributed to a decline in crude oil prices and positive sentiment in the domestic equity markets.

Forex traders noted that despite the rupee’s gains, a slightly stronger dollar and continued outflows from foreign institutional investors (FIIs) limited the extent of the rupee’s rise. They emphasized that the market is closely watching the upcoming decision from the Reserve Bank of India (RBI)’s Monetary Policy Committee, scheduled for announcement on October 4, 2023.

Market Dynamics and Currency Movements

In the interbank foreign exchange market, the rupee started at 88.73 against the US dollar before improving slightly to settle at 88.72, an increase from its previous close. On the preceding day, the rupee had consolidated in a narrow range, ultimately closing lower at 88.75.

Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, remarked, “Foreign Portfolio Investors continue to sell off in equity markets, which tends to drive the rupee down whenever it gains. The absence of any significant updates regarding the India-US trade treaty has left the markets anticipating the RBI’s policy decision.”

The RBI’s meeting occurs against a backdrop of ongoing geopolitical tensions and recent imposition of a 50 percent tariff on Indian shipments by the US.

Impact of Global Factors

Meanwhile, the dollar index, which measures the greenback’s strength against a basket of six currencies, was reported at 97.94, reflecting an increase of 0.04 percent. Brent crude oil, a global benchmark, traded 0.79 percent lower at USD 67.43 per barrel in futures trade.

Bhansali explained that the decline in crude prices is partly due to increased supply from Kurdistan exports to Turkey, along with OPEC+ preparing for a production increase in November. Additionally, uncertainties surrounding a potential US government shutdown are thought to impact oil consumption.

On the domestic equity front, markets showed resilience in early trading, with the Sensex surging 312.88 points to reach 80,677.82, while the Nifty rose by 96.9 points to settle at 24,731.80. However, data indicated that foreign institutional investors offloaded equities worth Rs 2,831.59 crore on Monday.

In a related development, the US has announced a 100 percent tariff on branded or patented drugs entering the country from October 1, 2023. This exemption applies to pharmaceutical companies that are establishing manufacturing plants in the US, including those whose construction has already commenced.

As the markets await the RBI’s decision and monitor international developments, the interplay of local and global factors will continue to shape the rupee’s trajectory in the coming days.