USD to INR Analysis & Commentary

Updated on 14 Nov 2023

The Indian rupee remained relatively stable against the US dollar in October’23, with the USD to INR rate fluctuating between 83.01 and 83.41. The average rate for the month was 83.23. 

Despite a stronger dollar and elevated US Treasury yields, the Indian rupee has shown low volatility and orderly movements in comparison to other currencies. 

The INR's movements are consistent with the strength of the underlying macro-fundamentals and the availability of reassuring buffers.

India's current account deficit has improved year-on-year, and the country is now on a path to achieving a current account surplus. 

However, the road ahead is still uncertain due to geopolitical contingencies. Domestic initiatives to stimulate production can help to reduce India's import dependency and create a more balanced trade environment.

Still, there were a couple of factors that contributed to downward pressure on the Indian Rupee including the US Reserve Interest Rate hike.

The US Federal Reserve continued its monetary tightening policy, raising interest rates by 0.75 percentage points in October. This move definitely enhanced the attractiveness of USD-denominated assets, thereby pressuring the INR.

However, note that the Indian rupee may gain some stability in the coming months due to anticipations that the US Federal Reserve will not increase interest rates further, which may weigh on the demand for the dollar.

Foreign portfolio investors (FPIs) continued their sell-off of Indian equities in October, withdrawing Rs 8,000 crore from the market. Prior to this, FPIs were consistently buying Indian equities in the last six months.

The ongoing Israel-Hamas conflict is causing concern in India due to its potential impact on oil prices. Despite India's increasing reliance on oil from Russia since the invasion of Ukraine in 2022, a significant portion of its imports still originate in West Asia.

Several analysts in India are concerned that the ongoing conflicts may lead to new global economic gusts for the country since high oil prices are likely to increase import costs and food prices.

As per our analysis, the USD to INR exchange rate is likely to remain stable in the coming months. India's strong economic fundamentals and positive trade balance provide support for the INR, however, global uncertainties as well as interest rate hikes can pose downward pressure on the Rupee.

Exchange Rate Analysis for Other Currencies Paired with INR