On Friday, the Indian rupee had one of its best days in recent years, with gains of 49 paise and 72 paise against the dollar (₹66.91) and euro (₹78.13) respectively. The rupee was supported after data showed India’s economy growing faster than any other in the world, including China.
For USD/INR, now at a one-month low (rupee high), economic growth of 7.7 percent in the first quarter, which bettered expectations of 7.0 percent, offset what appeared to be a very positive US employment report. US jobs growth of 223,000 in May also exceeded expectations, as did month-on-month earnings growth of 0.3 percent, but the US participation rate – another measure watched closely by the Federal Reserve – fell for a third consecutive month, to 62.7 percent.
The rupee had, prior to recent days, been struggling; it lost 5 percent of its value relative to the dollar between April 9th and May 23rd, partly due to broad strength in the US currency but also because of important seasonal characteristics – the rupee typically falls in value every second-quarter due to India’s heightened gold demand heading into the Hindu festival of Akshaya Tritiya.
What’s next for the rupee isn’t clear. The rupee remains weak by recent standards against major currencies of the world, including the dollar, euro, yen and Chinese yuan. Threats to the rupee include the recent escalation in global trade tensions and higher oil prices. Oil remains India’s largest import and its near-40 percent gain over the past twelve months coupled with a weak currency will almost certainly challenge inflation, which is already running above the Reserve Bank of India’s target.
“Unless the RBI hikes [interest] rates there could be further weakening of the rupee,” said Vijay Valecha, a market analyst at Century Financial Brokers, on Friday.