Key Takeaways
- Indian rupee strengthens modestly on Friday due to oil price drop and expectations of foreign portfolio inflows.
- Brent oil prices fall 0.7% to $104.1 per barrel, easing market concerns.
- National Stock Exchange of India's $2.3 billion IPO expected to attract significant foreign investment.
The Indian rupee is set to open modestly stronger on Friday, buoyed by a retreat in oil prices and expectations of foreign portfolio inflows linked to a large initial public offering (IPO).
Brent oil prices have eased, falling 0.7% to $104.1 per barrel, marking a third consecutive session of losses. This decline in oil prices has provided some relief to the rupee, which had been under pressure.
Traders and analysts are anticipating significant foreign institutional investor (FII) demand for the National Stock Exchange of India’s $2.3 billion IPO, which is among the largest on record and closes for subscription on Monday.
These factors, combined with a modest retreat in US bond yields, may offer the rupee some breathing room. However, market participants expect dollar demand from local importers to limit any meaningful recovery.
Analysts at BofA Global Research caution that oil prices above $80 per barrel and seasonal deterioration in the current account deficit toward the end of Q3 remain key risks to the Indian rupee.
They note that consistent capital inflows or RBI support would be necessary to keep the USD/INR range-bound. The rupee is expected to face challenges from dollar demand from local importers.
Elsewhere in Asia, currencies and regional stocks have also gained, with investors keeping an eye on the Bank of Japan’s monetary policy decision. The central bank is set to raise interest rates to a 31-year high and pledge to deliver more to counter inflation risks.
Monetary policy actions remain in focus globally amid inflationary pressures generated by the Iran war. The US Federal Reserve has already raised rates, while the Bank of England warned it may have to hike if the Middle East conflict drags on.
