The Indian rupee has surprised many bankers by staying flat even though the U.S. dollar has been falling recently. Usually, when the dollar weakens, Asian currencies, including the rupee, tend to gain strength. But this time, the rupee is not following the usual pattern.
While other Asian currencies went up by 0.1% to 0.6% against the dollar in a day, the rupee barely moved and stayed at 85.61. This trend has continued through May. For example, the Korean won has gone up by 3.6%, and the Chinese yuan by about 1% this month, but the rupee has dropped around 1%.
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Bankers believe that the reason behind the rupee’s weak performance is the continuous outflow of dollars from India. This includes foreign investors pulling money out of Indian stock markets and companies making large payments in dollars.
Apurva Swarup from Shinhan Bank India said the rupee has been under pressure due to these outflows, but once they stop, the rupee might improve.
A treasury official mentioned that some investors are possibly shifting their money from Indian to Chinese stocks, adding more pressure on the rupee. A trader at a government-run bank added that there’s nothing wrong with the Indian economy, and the rupee’s price changes mostly depend on these money flows.
Also, since the rupee hasn’t broken key levels like 85.40 and 85.20, traders are not confident about betting on its rise.
Looking ahead, the rupee is expected to stay in a fixed range. Traders are watching for updates on trade talks between India and the U.S., as these could affect investor interest in Indian markets.
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On the other side, the U.S. dollar is weakening because of concerns about America’s financial health and uncertainty over future trade policies. MUFG Bank said that investors might be losing confidence in U.S. trade and fiscal strategies. On the day, the dollar index dropped by 0.3% and touched a two-week low of 99.6.
Overall, the rupee is falling behind its Asian peers in May, despite the dollar’s weakness.
