Rupee logs best week this year, aided by Fed cut, portfolio inflows

The Indian rupee rose for the fifth straight session on Friday, helped by gains in Asian peers and likely portfolio inflows, after the US Federal Reserve kicked off its interest rate cutting cycle earlier this week.

The rupee closed at 83.5625 against the US dollar, up from its close at 83.68 in the previous session.

The Indian currency jumped to a more than two-month high of 83.4850 earlier in the session and gained nearly 0.4 per cent week-on-week, its strongest weekly rise this year.

The Fed's larger-than-usual 50-basis-point rate cut on Wednesday, and inflows into local stocks and bonds have lifted the rupee, traders said.

Overseas investors have net bought more than $7 billion of Indian debt and equities so far in September, the highest monthly inflow since December 2023.

Benchmark Indian equity indices, the BSE Sensex and the Nifty 50, rose to record highs on Friday and ended the day up about 1.5 per cent each.

Inflows were "quite strong" but the rupee gave up some gains after dollar bids from state-run banks picked up, a trader at a foreign bank said.

The dollar index was up nearly 0.1 per cent at 100.8, while most Asian currencies rose between 0.1 per cent and 0.6 per cent. The offshore Chinese yuan, a closely watched peer currency of the rupee, rose to a 16-month peak of 7.04.

Investors are currently pricing in another 70 basis points of rate cuts by the Fed over 2024, implying that one of the central bank's remaining two policy decisions this year is likely to be another 50-bp cut.

US stocks finished mixed on Friday, although the Dow Jones Industrial Average notched another closing high.

Odds of a 50-bp rate cut in November are currently at 44 per cent, according to CME's FedWatch tool.

Societe Generale's FX strategists expect a secular decline in the dollar over the coming quarters, according to a note.