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 early August, the rupee finally mustered enough strength to push USD/INR below the crucial 64.0 level. The rupee rose to a two-year high of 63.53.
Having meandered sideways throughout Q2 (the second quarter is usually a period in which the rupee loses steam due to its seasonal nature) a gain of 2% against the dollar in the four weeks leading up to August 2nd will be welcomed by holders of rupees.
Strength in the rupee came in spite of India’s central bank cutting interest rates in August to 6% - India’s lowest rate since 2010.
The central bank had been facing pressure ahead of its August meeting to cut the interest rate after June data showed inflation falling to a five-year low of 1.54% – well below the bank’s target of 4%.
The rupee managed to hold on to gains despite a reduction in Indian rates partly for technical reasons but more so because the central bank did not change their monetary policy bias at the meeting, which remains “neutral.” A change to “accommodative” would have indicated further rate cuts in the coming months.
Despite a 2017 gain against the dollar of almost 7%, the rupee remains close to multi-month lows against several of the other majors, most notably the euro, against which it was trading in early August at 75.47.