Indian rupee extends four-day rally as central bank offsets Fed pause
The Indian rupee strengthened for a fourth consecutive session as the Reserve Bank of India intervened to offset a resilient US dollar following the Federal Reserve's decision to hold interest rates steady.
The Indian rupee opened 6 paise higher at 95.59 against the US dollar on Thursday, extending its winning streak to four consecutive sessions. The domestic currency gained more than 1% during this period, briefly strengthening to 95.49 before closing at 95.6475.
Traders attribute this recovery primarily to sustained intervention by the Reserve Bank of India. The central bank has actively stepped in to curb excessive volatility and prevent sharp currency movements, providing a crucial floor for the rupee amid global headwinds.
The currency's resilience comes despite the US Federal Reserve maintaining its benchmark interest rates at 3.50% to 3.75%. While the pause was widely anticipated, Fed Chair Kevin Warsh signaled a cautious stance, emphasizing that the battle against inflation is not over.
Warsh stressed that officials remain dedicated to restoring inflation to the central bank's 2% target and are not prepared to declare victory. Analysts note the Fed keeps the option of further tightening open if labor market and inflation data exceed expectations.
Broader market conditions continue to exert pressure on emerging market assets. The US 10-year Treasury yield held near 4.70%, reflecting persistent inflation concerns that support dollar demand and reduce the relative appeal of Indian equities and debt.
For international investors, the dynamic creates a complex environment. A stronger rupee can enhance the local currency returns of foreign portfolio investments, but the underlying strength of the dollar and elevated US Treasury yields continue to compete for global capital.
Compounding these challenges, Brent crude prices rebounded toward $89 per barrel, presenting a key risk factor for India's import bill. Experts caution that the rupee’s broader trajectory will ultimately depend on crude oil fluctuations, global dollar strength, and geopolitical developments.
Market professionals see limited upside for the local currency in the near term. Amit Pabari, managing director of the research team at CR Forex Advisors, identified the 95.50 to 95.60 zone as a crucial support level for the USDINR pair.
Pabari noted that while recent rupee strength was aided by central bank intervention, the broader macroeconomic backdrop remains supportive for the dollar. He expects the exchange rate to move toward the 96.80 to 97.00 zone as long as the current support level holds.
