The Indian rupee strengthened by 7 paise to 83.82 against the US dollar in early trade on Friday. The local currency opened at 83.83 on the interbank foreign exchange market but gained ground to touch 83.82, marking a notable rise from its previous close.

Market Dynamics and Influences

On Thursday, the rupee appreciated by 8 paise to close at 83.89 against the American currency. The rise in the rupee is attributed to improved global risk sentiments and potential MSCI rebalancing flows, which are expected to bring in approximately USD 3 billion. Forex traders suggest that these inflows could further support the rupee in the near term. CR Forex Advisors’ MD Amit Pabari indicated that the rupee could trade within a range of 83.75 to 83.90, with a medium-term forecast suggesting a range of 83.60 to 84.05, leaning towards appreciation.

However, the positive momentum was somewhat tempered by the recovery of the US dollar and month-end demand for dollars from importers and oil marketing companies (OMCs). The dollar index, which measures the greenback’s strength against a basket of six currencies, rose by 0.03% to 101.37 points.

Oil and Equity Markets

In the commodities market, Brent crude futures gained 0.29% to USD 80.17 per barrel. This uptick in oil prices could impact the rupee indirectly, given India’s significant oil import needs.

The domestic equity markets also displayed positive performance. The 30-share BSE Sensex advanced by 227.63 points, or 0.28%, reaching 82,362.24 points. Similarly, the Nifty index rose by 65.70 points, or 0.26%, to 25,217.65 points.

Foreign Investment and Economic Outlook

Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Thursday, acquiring shares worth Rs 3,259.56 crore, according to exchange data. This inflow of foreign investment bolsters the positive sentiment towards the rupee.

Adding to the positive economic outlook, Moody’s Ratings upgraded India’s GDP growth forecast for 2024 and 2025 to 7.2% and 6.6%, respectively. This revision reflects strong broad-based economic growth and contributes to the overall optimistic outlook for India’s economic trajectory.

Conclusion

The rupee’s modest rise against the US dollar underscores a favorable shift in market sentiment, aided by anticipated MSCI inflows and a supportive domestic economic environment. While global factors such as the strength of the US dollar and oil prices continue to play a role, the rupee is expected to maintain its upward momentum in the short term, with medium-term forecasts suggesting a positive bias.