The Indian rupee made a strong comeback in the currency market on Tuesday, due to the India-EU trade deal, rise in the stock market, increase in forex reserves and fall in the dollar index. On Friday, the rupee had fallen to around 92 against the dollar, from where it made a strong recovery on Tuesday. The market was closed on Saturday and Sunday, and Monday being a public holiday due to Republic Day, the market opened on Tuesday, and the rupee did not disappoint investors and traders. The rupee benefited a lot from the fall in the dollar index.
However, there was selling by foreign investors and crude oil prices also rose. If these two factors were not there, the rupee could have appreciated even faster. According to experts, the rupee may strengthen further in the coming days. This has happened due to the announcement of a trade deal between India and the European Union, which has increased the possibility of a trade deal between India and America soon.
Experts estimate that now America can also show more speed in making trade deals with India. Additionally, trade talks between India and Canada are expected to begin in March, which may also have an impact. Let us see how much the rupee strengthened on Tuesday.
Return of rupee against dollar
The rupee recovered from its all-time low on Tuesday and closed at 91.71 (provisional) against the US dollar, up by 19 paise, amid a fall in the US dollar index and India-EU FTA talks. Foreign currency traders said the rupee recovered marginally as traders rushed to cover their positions amid the dollar’s weakness. Additionally, India-EU FTA boosted domestic market sentiments. However, rising commodity and crude oil prices limited the sharp rise.
At the Interbank Foreign Currency Exchange market, the rupee opened at 91.82 and fell to a low of 91.90 during the day. The Indian rupee ended the day at 91.71 (provisional), showing an increase of 19 paise from its previous close. On Friday, the rupee had hit a historic low of 92 against the dollar, after which it closed slightly higher at 91.90. Foreign exchanges and stock markets were closed on Monday due to Republic Day. This means that the currency market opened after a three-day holiday.
Will the rupee become stronger?
Anuj Chaudhary, Research Analyst, Mirae Asset Sharekhan, said that he expects the India-EU Free Trade Agreement (FTA) to strengthen the sentiment in the domestic market, which will lead to a slight positive trend in the rupee. Weakness in US dollar index may further strengthen the rupee. However, selling by foreign institutional investors (FIIs) and ongoing geopolitical tensions may put further pressure on the rupee. Chaudhary further said that the US has threatened to impose 100% tariffs on Canada and increase tariffs on South Korea to 25% from the current 15%. Dollar-Indian Rupee (USDINR) spot price is expected to remain between 91.30 and 92.
India-EU trade deal announced
Meanwhile, India and the European Union on Tuesday announced the completion of negotiations for a free trade agreement (FTA) under which several domestic sectors like textiles, chemicals and footwear will get duty-free access to the 27-nation bloc, while the EU will get access to the Indian market with concessional duty on cars and liquor, an official said. This agreement is being called the “mother of all deals” because it will create a market of approximately 2 billion people.
dollar index fell
Meanwhile, the dollar index, which measures the dollar’s strength against a basket of six currencies, was trading 0.12 per cent lower at 96.92. The dollar index has declined by 1.74 percent last week. In January alone, the dollar weakened against other currencies by about 1.5 percent. Over the past year, the dollar index has fallen by more than 10 percent.
Crude oil prices increased
Crude oil prices are increasing in the international market. Brent crude oil from Gulf countries rose 0.35 percent, taking the price to $65.84 per barrel. American crude oil prices also increased. According to the data, US crude oil rose 0.46 percent, taking the price of WTI oil to $60.91 per barrel.
stock market boom
After several days of decline, a good rise was seen in the domestic stock market. Last week, the Sensex had fallen by more than 2000 points. However, when the stock market closed on Tuesday, the Sensex rose by 319.78 points to reach 81,857.48. Nifty also saw a rise, rising 126.75 points to 25,175.40. Experts believe that EU-India FTA may further boost the stock market in the coming days.
surge in foreign exchange reserves
Foreign exchange reserves figures were released on the last trading day of last week, which showed a record increase. India’s foreign exchange reserves increased by US$14.167 billion to US$701.36 billion in the week ended January 16, according to data released by the Reserve Bank of India. Last week, total reserves had increased by US$392 million to US$687.193 billion.
Foreign investors are continuously selling
According to NSDL data, foreign institutional investors sold shares worth Rs 4,113.38 crore on Friday. Data shows that foreign investors are continuously booking profits in the stock market. In the month of January alone, foreign investors have made profits of Rs 36,811 crore. Selling by foreign investors was also seen in November and December last year. Experts believe that the trade deal between India and EU can increase the confidence of foreign investors in the Indian market.
What will Trump do?
After the India-EU trade deal, the pressure on America to make a trade deal with India has increased. Experts believe that the trade deal between India and EU has resolved many issues. Now, India will not have to depend only on America for exports. Even if India’s exports shift from America to Europe, Indian goods can reach America via Europe. This will benefit both India and Europe.
Meanwhile, goods coming from India will become more expensive for America. Therefore, a direct deal with India would be beneficial for the US. Apart from this, India and Canada are going to talk on uranium, energy and other issues in March. This means that trade talks that have been stalled since November can resume. In this situation, America, or Trump, has no other option but to make a trade deal with India.