New Delhi: The recent reduction in the Federal Reserve's benchmark interest rate has significantly enhanced liquidity within the Indian markets, leading to a projected strengthening of the Indian rupee against the US dollar, with an anticipated trading range of Rs 83.57, as outlined in a research report by the Union Bank of India.
The report indicates that the rupee is poised to trade within a range of Rs 83.27 to Rs 83.99, with a potential all-time low of Rs 83.99. It further notes that the rupee is likely to remain within this range, buoyed by positive momentum from foreign portfolio investors (FPI) inflows and a general decline in the US dollar.
"In light of the prevailing global scenario, we have adjusted our technical analysis to suggest that the Indian rupee should seek support at Rs 83.27, with potential resistance at Rs 83.77, followed by a critical level of Rs 83.99, marking an all-time high," the report states.
The analysis underscores that, considering the current global economic landscape, the rupee is expected to find support at Rs 83.27 and is anticipated to encounter resistance around Rs 83.77, with a critical threshold of Rs 83.99. Should the rupee surpass this resistance at Rs 83.99, it could potentially test levels as high as Rs 84.16, drawing from trends observed in the Non-Deliverable Forward (NDF) market.
Looking forward, the report highlights that the widening interest rate differential between the US and India is expected, given the Federal Reserve's significant rate reduction of 50 basis points in its September FOMC meeting. Despite this, it is anticipated that the Reserve Bank of India (RBI) will likely maintain its "Withdrawal of Accommodation" policy, in response to escalating food inflation.
This widening interest rate gap is expected to attract further inflows from foreign portfolio investors (FPI), thereby providing additional support to the rupee.
This trend is already evident in the Reserve Bank of India's data on External Commercial Borrowings (ECB) inflows. In July 2024, Indian entities, including non-banking financial companies (NBFCs), submitted proposals to the RBI for raising USD 3.58 billion through ECBs via the automatic route.
Although this figure represents a modest increase from the previous year, the report expects this number to rise further in the forthcoming months, reflecting a strengthening trend.
"The Reserve Bank of India is set to raise USD 3.58 billion through External Capital Borrowings (ECBs) via the automatic route. Even this figure indicates a marginal increase YoY, but we anticipate a further rise in this figure this year," the report concludes.
In summary, the report suggests that the combination of Federal Reserve rate cuts, an expanding interest rate gap between the US and India, and an increase in foreign portfolio investor inflows will continue to sustain the Indian rupee in the near future.
