Rupee Edges Up Amid Weak Dollar Pressure

On Wednesday morning, the Indian rupee rose by just 0.1% to reach a value of 91.6350 against the dollar. The rupee received support from the continued weakness of the U.S. dollar, which trades near four-year lows against major currencies. 

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Month-end corporate demand for dollars, however, has kept the gains for the rupee within a narrow range compared to the sharp gains of other Asian currencies.

The weakness in the U.S. dollar is attributed to a statement by U.S. President Donald Trump downplaying the recent declines in value of the currency.

Corporate Demand Caps Rupee Rally

Many corporations buy dollars for their month-end payments and repayments for their offshore borrowings. This demand is counter to the positive impact of the Euro, Korean won and Chinese yuan.

Despite the overall dollar selling pressure, the rupee has lagged its regional currency counterparts as the demand from corporate firms has limited any further upside.

The weakness of the U.S. dollar offers temporary relief to the rupee from its recent record lows. In order for the rupee to stabilise, we need to see increased capital flows into the country, which would support an appreciating value for the rupee.

Foreign Investor Activity Weighs

Investors around the globe have offloaded local stock holdings a record number of times throughout the month, which has led to record outflow figures being placed under currency pressure.

USD/INR continues to stabilise, although the currency has generally experienced some degree of weakness against the USD as a result of soft dollar intervention by the Indian Reserve Bank.

Federal Reserve Focus Ahead

The focus will be on what new information Fed Chair Jerome Powell will provide us regarding his views on the independence of the Federal Reserve.

Comments and statements that align with market interest rates will significantly influence global currency flows.

All of this will play into the rupee's ongoing challenges as it seeks to balance the overall weakening of the dollar with domestic demand. Month-end activity will dominate short-term trading activity.