Indian rupee touches strongest since April as foreign inflows offset firm dollar

The Indian rupee reached its strongest level since April on Wednesday, defying a generally stronger dollar, reports indicate. Foreign inflows into local stocks and price movements in the non-deliverable forward market bolstered the currency. The rupee closed at 93.69 per dollar, marking a 0.2% gain for the day and peaking at 93.6350 during afternoon trading.

This comes after the currency plummeted to a record low of 96.96 in May, narrowly avoiding breaching it last month. It has now declined by approximately 4% year-to-date, significantly reducing its annual losses from its peak. Market observers noted broad-based selling pressure on the dollar throughout the session, with heightened activity in the NDF market signaling a shift in sentiment towards the currency.

This development helped the rupee counteract potential downside risk from a stronger dollar, which was propelled by robust inflation data and assertive remarks from Federal Reserve officials. Currently, traders are pricing in a 25-basis-point rate hike in December, as per the CME FedWatch Tool, with a limited chance of a more substantial 50-basis-point increase.

"The evidence is mounting for the Fed to move towards a more restrictive rate regime to curb aggregate demand and rein in inflation," analysts at ING stated in a recent analysis. Although a potential hike in US interest rates would usually weigh on the rupee, traders are currently more preoccupied with the surge in foreign portfolio investments in Indian equities.

In November, foreign investors injected nearly $6 billion, the highest single-month inflow since September 2024. The Nifty 50, India's key stock index, climbed on Wednesday. Moving forward, market attention will shift to India's October inflation data, expected to be released on Thursday. Forecasts suggest that annual consumer inflation may have risen to 5.93% in October, up from 5.54% in September, according to a median estimate from a Reuters poll of 36 economists conducted between November 2-6.