Indian Rupee General Info
The Indian rupee gets its name from the rupiya – a silver coin first produced in the sixteenth century.
Rupee trades make up around 1% of the total volume of the foreign exchange market. This market share is comparable to currencies from other major emerging market economies, such as South Africa, Brazil and Russia, but falls some way short of the 4% share taken by the Chinese yuan – the most actively traded emerging market currency.
Importantly, the rupee has strong seasonal characteristics. The currency typically falls in value every second-quarter (April-to-June) due to India’s heightened gold demand heading into the Hindu festival of Akshaya Tritiya. Heavy rains between June and September can also depress industrial production in the country and weaken exports, which weigh on the currency.
The rupee’s all-time low against the US dollar came in February 2016 when USD/INR reached 68.80 (INR/USD 0.0145). Its all-time high came in March 1973 when USD/INR traded at just 7.19 (INR/USD 0.139). More recently, since 2007, the rupee was at its strongest in November 2007 when USD/INR fell to 39.10 (INR/USD 0.0256).
INR - Market View
In mid-June, the Indian rupee was trading in the mid 64s against the US dollar, having rallied steadily throughout much of 2017. Between late January and late April, the rupee gained against the dollar in nine of twelve weeks, pushing USD/INR down 6% in total – a significant move for an exchange rate which, in the entirety of 2016, traded in a range equivalent to just 4.5%.
Since late April, the rupee has traded sideways against the dollar between 64 and 65, which is not unexpected given the currency’s strong seasonal characteristics. The rupee typically falls in value every second-quarter (April-to-June) due to India’s heightened gold demand heading into the Hindu festival of Akshaya Tritiya.
The rupee, which has benefitted this year from an improved outlook for emerging markets, had strengthened enough to push USD/INR marginally below 64.0 in late April and mid-May but each time was forced back. The 64.0 level has a clear history of halting movement in the exchange rate. It did so in 2013, 2014 and several times in 2015, and will act as significant support for USD/INR in the coming months. A break below this level will likely send the pair significantly lower.
Emerging markets will remain supported throughout 2017 according to a senior researcher at investment fund Ashmore, but the rupee will be vulnerable to further seasonal factors, which include the threat of heavy summer rains – something which can depress industrial production in India and weaken the country’s exports.