What’s going on here?
The Indian rupee (INR) is expected to open slightly stronger at 83.92 against the US dollar (USD), above its last closing price of 83.9525 thanks to interventions by the Reserve Bank of India (RBI).
What does this mean?
For most of August, the rupee remained near the 84 mark, rising to 83.75 at one point. The RBI has taken active steps to prevent the currency from falling below 84, although this strategy may change based on Federal Reserve (Fed) Chairman Jerome Powell’s remarks at the upcoming Jackson Hole meeting. Traders are closely monitoring Powell’s speech for clues on possible interest Rate cuts. Goldman Sachs expects a series of 25 basis point cuts in September, November and December, while investors expect a total of 100 basis point cuts by the end of the year.
Why should I care?
For markets: All eyes are on Powell.
The market reaction to Powell’s statements could determine whether the rupee will strengthen or weaken. Currently, the one-month non-deliverable forward for the rupee is quoted at 83.99 and the one-month onshore forward premium is 7 paise. Other market indicators show that the dollar index (DXY) fell to 101.34, Brent crude oil futures fell 0.2% to $77.1 per barrel, the US 10-year Treasury yield is at 3.84% and the Indian 10-year Treasury bond binding Yield at 6.86%.
The overall picture: Global economic trends.
The rupee’s performance depends not only on local monetary policy but also on global economic movements. If the Fed signals more aggressive rate cuts, the dollar could weaken and give the rupee some breathing room. Conversely, if the dollar strengthens after Powell’s speech, the RBI’s resolve to defend the 84 mark could be severely tested. Foreign investors sold a net worth of $51.3 million of Indian equities on August 22, adding further complexity to the rupee’s outlook.
