Indian Rupee: Flows recovering as Dollar strength caps gains – DBS

FXStreet Insights Team FXStreet

DBS Group Research economist Radhika Rao notes India’s onshore markets are being pulled between higher Oil prices and improving capital flows. Rising crude has lifted USD/INR and long-end bond yields, while the Finance Ministry warns high energy costs could pressure the current and fiscal accounts. Portfolio inflows and swap-window funding are recovering, yet the Indian Rupee (INR) remains weaker against the US Dollar (USD).

Oil shock versus improving capital flows

"India’s onshore markets are currently caught between two opposing forces: higher oil prices driven by renewed Middle East hostilities (and concern over Red Sea), and a strengthening inflows picture."

"A surge in benchmark crude prices pushed up USD/INR, necessitating a strong intervention response from the central bank to keep the domestic currency from revisiting record lows."

"The spot-neutral nature of inflows under the swap windows, increased hedging-related demand, authorities’ preference to mop-up inflows to gradually lower their exposure in the forwards book as well as a firm US dollar due to US policy tightening expectations, have constrained the room for sharp gains in the rupee."

"Overnight dollar pullback on Friday, will be briefly supportive of Asian currencies led by the yen, before the rupee returns to familiar play, with 95.00 to mark a floor."

"Despite the turnaround in inflows, the rupee has depreciated 1.1% this month, and a cumulative 6% on CYTD, against the dollar."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD shows resilience below 38.2% Fibo. near mid-0.7100s

The AUD/USD pair touches a one-and-a-half-week low, around the 0.7140 region during the Asian session on Monday, though it lacks follow-through. Spot prices currently trade just above mid-0.7100s, down nearly 0.25% for the day.

USD/JPY: Japanese Yen edges lower vs USD amid Middle East jitters as Fed, BoJ meetings loom

The USD/JPY pair attracts some buyers at the start of a new week and climbs closer to the 154.00 mark during the Asian session, reversing a part of Friday's losses. Spot prices, however, remain confined in a range held over the past week or so and within striking distance of a nearly seven-month low, touched last Tuesday, as traders await this week's key central bank events.

Gold extends slump below $4,300 on broad US Dollar demand

Gold fell through $4,300 on Monday, as demand for the US Dollar surged ahead of the Federal Reserve's monetary policy decision this Wednesday. Increased bets for an interest rate hike lead the way up.

Crypto Today: Bitcoin, Ethereum, XRP recover ahead of US Senate vote on CLARITY Act

Bitcoin edges higher, trading near $77,884 as of Monday, in tandem with broader gains across the cryptocurrency market. Ethereum and Ripple follow Bitcoin’s neutral-to-bullish trajectory, holding key support levels at $2,521 and $1.38, respectively.

Will the Fed deliver the hawkishness markets are pricing in?

Fed hike bets increase after PPI and CPI reports. Updated dot plot to be crucial for the dollar’s reaction. Warsh’s independence faces test amid Trump’s pressure for lower rates. For the Dollar to extend gains, Fed needs to satisfy current hawkish bets.

Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight

The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.