As the global uncertainties show signs of moderation and geopolitical tensions along India’s borders settle, the Rupee will witness stability, said Union Bank of India (UBI) report. “Rupee volatility is expected to settle for now, supported by easing global uncertainties and reduced border tensions,” the report added.
The report further added that given the current global scenario, volatility is expected to temporarily subside as major uncertainties appear to have settled, at least for now. At the time of filing thist, the rupee is trading at the level of 85.61 against the US dollar on May 21.
“We now anticipate a sideways movement in the Rupee, with support seen around Rs 84.80/USD; a decisive break below this level could open the door to Rs 84.45/USD,” the report added. On the upside, as per the report, the resistance in the exchange rate is expected near Rs 85.90 per US dollar, and a breach of that could push the pair towards 86.80 per US dollar.
“Looking ahead, we are closely monitoring two key risks: A potential overshoot in the US Dollar Index (DXY) beyond current technical levels & any fresh escalation in cross-border tensions, which could weigh negatively on Rupee sentiment,” the UBI report added.
What Else For Rupee?
Additionally, the expectations of a pause or gradual adjustment in interest rate hikes by the US Federal Reserve are helping to reduce pressure on emerging market currencies, including the rupee. The report added that these factors together create a more supportive environment for currency stability in the short term.
As per the data released by the Reserve Bank of India (RBI), India’s foreign exchange reserves (forex) rose USD 4.553 billion to USD 690.617 billion in the week that ended on May 9. However, the previous all-time high was at USD 704.89 billion in September 2024.
Foreign exchange reserves, or FX reserves, are assets held by a nation’s central bank or monetary authority, primarily in reserve currencies such as the US Dollar, with smaller portions in the Euro, Japanese Yen, and Pound Sterling.
The RBI often intervenes to manage liquidity, which includes selling dollars, to prevent steep Rupee depreciation. The RBI strategically buys dollars when the Rupee is strong and sells when it weakens.
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