Surging equity inflows, shift in outlook support rupee upward trend
The Indian rupee is expected to open higher on Friday, supported by renewed foreign inflows into local equities and a decline in the bearish market sentiment.
The 1-month non-deliverable forward indicated that the rupee will open at 85.68 to 85.72 versus the U.S. dollar compared with 85.78 in the previous session.
The rupee has successfully retained its rally from last week, holding above the 86 handle, largely on the back of the return of foreign investors to the Indian equity market.
On Thursday, foreign investors invested over $1.2 billion in Indian shares. This brings their total purchases of local equities over the past six sessions to $6 billion, marking a major reversal from the previous period of outflows.
The rupee surpassing 86 and maintaining that level, was "definitely not what many had expected", a bank currency trader said. He emphasized the significant impact of equity inflows and the reduced prevalence of the previously "well-accepted" USD/INR dip-buying strategy.
QUIET ASIA FX
The rupee's Asian peers were mostly rangebound on the day, awaiting clarity on the extent of U.S. tariffs. U.S. President Donald Trump is poised to announce a slew of new tariffs next week, having already announced a 25% levy on imported cars would take effect on April 3.
The announcement of auto tariffs elicited a muted response from Asian currencies, possibly because Trump suggested a more lenient approach to reciprocal tariffs scheduled for next week.
"The weak reaction in FX to the tariff news could suggest the market is moving on from the announcement effect to looking at how tariffs impact business and consumer confidence and, ultimately, the hard data of consumption and business investment," ING Bank said in a note.
Meanwhile, February figures for the Federal Reserve's preferred inflation gauge are due later in the day.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 85.88; onshore one-month forward premium at 21.75 paise
** Dollar index at 104.27
** Brent crude futures down 0.1% at $74 per barrel
** Ten-year U.S. note yield at 4.34%
** As per NSDL data, foreign investors bought a net $286.2 million worth of Indian shares on March 26
** NSDL data shows foreign investors sold a net $123.5 million worth of Indian bonds on March 26
