On a Monday that opens with the Indian rupee holding near 93.9 against the dollar, a currency that has just enjoyed a strong week finds itself leaning on two supports that may not last. Foreign money pulled in from across Asia, and a sharp fall in oil prices, have given it breathing room after months of strain. Yet the calm that settled over the AI trade, and the stronger American jobs figures pushing expectations of higher US interest rates, suggest that this rally is a question still waiting for an answer.
Rupee's Rally Faces Test as AI Market Jitters Ease and Foreign Flows Hang in Balance
One week of both does not yet make a sustained turnaround.
Mark
Why is a currency story tied to AI stocks in Korea and Taiwan?
Mimi
Because last week's rupee gain was partly a diversification story. Tech stocks sold off after the US midterms, South Korea and Taiwan saw foreign outflows, and more than $4 billion went into Indian equities.
Mark
So the rupee benefited from trouble elsewhere?
Mimi
In part. The calming on Friday and Monday could slow that flow.
Luke
Careful there. The report links the flows to the AI selloff, but it doesn't give a breakdown of where the $4 billion came from. The connection is plausible, not measured.
Mark
What else helped the rupee?
Mimi
Oil. Brent fell nearly 20% last week, and oil has been one of the main pressures on the currency for months.
Luke
And the rupee's gain was just over 1%. One week of that doesn't prove a trend. The report itself says a sustained turnaround is what would matter.
Mark
What about the Fed?
Mimi
US payrolls beat expectations, which raised bets on a December rate hike. Most Asian currencies weakened Monday.
Luke
Worth noting that's an expectation, not a decision. And the opening range of 93.92 to 93.98 is traders' forecast, not a result.
El Pulso
- The rupee climbed more than 1% last week, but its footing now depends on whether fragile investor confidence holds.
- A tech selloff after the US midterm elections rattled South Korea and Taiwan, sending foreign money scrambling for new homes.
- Brent crude's nearly 20% slide and over $4 billion in equity inflows gave India's currency its strongest support in months.
- With the AI jitters easing and Asian markets rebounding, traders are watching whether the diversion of capital into India will slow.
- Stronger US payrolls have revived talk of a December Fed rate hike, a pressure that tends to drain emerging-market currencies.
On a Monday that opens with the Indian rupee holding near 93.9 against the dollar, a currency that has just enjoyed a strong week finds itself leaning on two supports that may not last. Foreign money pulled in from across Asia, and a sharp fall in oil prices, have given it breathing room after months of strain. Yet the calm that settled over the AI trade, and the stronger American jobs figures pushing expectations of higher US interest rates, suggest that this rally is a question still waiting for an answer.
The Indian rupee is expected to open Monday between 93.92 and 93.98 to the dollar, having closed Friday at 93.9050. It arrives at the end of a strong week, and the coming sessions will show whether the rally can outlast the forces that produced it.
Two things lifted the currency. Foreign investors poured more than $4 billion into Indian equities, and Brent crude fell nearly 20% over the week, giving overseas capital another reason to favor India. Some of that money had been drawn out of South Korea and Taiwan, markets deeply tied to the AI trade, after a technology selloff followed the US midterm elections.
By Friday the panic had softened, the Nasdaq recovered, and Asian markets rose on Monday. That calm may slow the flows that had propped up the rupee. A currency trader noted that the divide between AI-linked and other trades is now well established, and how it unfolds will shape both Indian stocks and the currency.
Still, one good week does not amount to a turnaround. Strong US jobs data has revived expectations of a December Fed rate hike, and most Asian currencies weakened on Monday as a result. The week ahead will test whether foreign money keeps arriving and whether oil stays low enough to ease the pressure on the rupee.
The Indian rupee is expected to open Monday in a range of 93.92 to 93.98 to the dollar, according to traders, after closing Friday at 93.9050. The opening level comes at the end of a strong week for the currency, and it will show whether the rally can hold now that one of its drivers is losing force.
The rupee rose more than 1% last week. Two things helped. Foreign investors put more than $4 billion into Indian equities, a sizeable pick-up in inflows. Oil prices also fell sharply, with Brent crude down nearly 20% over the week, which gave overseas investors another reason to favor Indian assets.
Part of that money came from elsewhere in Asia. South Korea and Taiwan, two markets that have gained a great deal from the AI trade, slumped last week and saw foreign outflows. The trigger was a selloff in technology shares across the United States and Asia after the Democratic Party swept the US midterm elections on Wednesday. Investors worried the result could affect growth in the sector. Some of the money leaving those markets appears to have been diversified into Indian assets.
By Friday, that nervousness had eased to an extent. The Nasdaq recovered, and futures pointed to a further advance. On Monday, South Korean and Taiwanese markets rose. That tentative calm is what could slow the diversification flows into local assets that had supported the rupee.
A currency trader at a bank said the split between AI-linked and non-AI trades is now well established. "You just have to see how that is playing out," the trader said, adding that this will determine how Indian equities and the rupee perform.
The stakes for the currency are considerable. Capital flows and oil prices have been among the biggest sources of pressure on the rupee over the past several months. A sustained turnaround in equity inflows, combined with lower oil prices, could give it much-needed support. One week of both does not yet make a sustained turnaround.
The wider backdrop is less friendly. Most Asian currencies weakened on Monday after US payrolls came in above expectations. The stronger jobs data raised expectations that the Federal Reserve could raise interest rates in December, which tends to pull on emerging-market currencies.
The question for the week ahead is whether foreign money keeps flowing into Indian equities as the AI-related jitters settle, and whether oil stays low enough to keep the pressure off the rupee.
Citas Notables
This non-AI and AI-linked trade is now very well established. So you just have to see how that is playing out, and that will determine how Indian equities and the rupee do.— Currency trader at a bank, quoted by Reuters
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