- Indian Rupee (INR) soars as Indian stock market rallies
- Foreign investors are piling into stocks boosting US Dollar inflows
- US Dollar (USD) trades lower after Jerome Powell shifts policy framework
- US personal income and spending expected to support the economic recovery picture
The Indian Rupee US Dollar (USD/INR) exchange rate is extending losses on Friday. The pair settled -0.4% at 73.89 on Thursday. At 11:30 UTC, USD/INR trades -0.8% at 73.29.
The Rupee trades at an almost 6-month high after rallying over 2% across the week, its best weekly gain since late December. The Rupee is surging as foreign investors pile into the Indian equity markets and interestingly the Reserve Bank of India didn’t intervene.
Dollar inflows into the Indian stock market are boosting the Rupee. Foreign Portfolio Investors have purchased $6.2 billion worth of shares so far in August.
The Fed’s shift in policy framework has also worked to support the Rupee. The Federal Reserve Chair Jerome Powell announced an important change to policy in the previous session. Mr Powell affirmed that the Fed will adopt a softer stance towards handling inflation, permitting it to run over the 2% target for extended periods to compensate for the periods that it undershoots 2%.
Essentially the Fed is saying that interest rates will be lower for a longer. This is being viewed in a positive light by investors, boosting risk sentiment and dragging on the value of the US Dollar. Analyst believe that inflows into riskier perceived assets such as Indian stocks could rise on the back of the policy framework shift.
The Reserve Bank of India are still expected to intervene at times and continue to build its reserves. RBI foreign exchange reserves are up $60 billion at $535.35 billion since the start of the fiscal year in April 2020.
Attention will now turn to the US economic calendar with personal income, spending and prices all in focus.
Analysts expect to see the decline in incomes to moderate and spending to rise for a third straight month. This data is expected to reinforce the economic recovery story.
