US dollar, trade talks to guide Indian rupee's path: BoB report

The Indian rupee's direction will be guided by US dollar movement and US-India trade talks, a Bank of Baroda report notes. RBI intervention has stabilized the currency, which is forecast to trade in the Rs 88.5-Rs 89.0 range through November.

Movement in the dollar and progress in US-India trade negotiations are likely to drive the direction of the Indian rupee in the coming days, according to a report by Bank of Baroda.

The report noted that the rupee remained steady in October and early November, which comes amid a combination of RBI intervention, stronger dollar trends, sluggish foreign inflows, and higher importer demand for the greenback.

RBI Intervention and Rupee Stability

"RBI's intervention in the forex market was prevalent to prevent the domestic currency from sliding to a record low," the report said, adding that this marks a shift from the central bank's earlier stance of allowing a freer movement in the currency. "This trend is likely to persist in the coming days well," the report added.

The rupee traded within a narrow range of Rs 87.83-Rs 88.70 per dollar over the past month, with volatility easing sharply from over 4 per cent in October to about 1.2 per cent in November.

November Outlook and External Factors

The report estimates that the rupee will likely trade in a range of Rs 88.5-Rs 89.0 per dollar through the rest of November, though it cautioned that the outlook hinges on external developments, particularly in the US.

Global Market Dynamics

Globally, the US dollar has strengthened, with the dollar index (DXY) rising 0.6 per cent over the last month. This comes as markets scale back expectations of further Federal Reserve rate cuts this year, amid limited economic data due to the recent US government shutdown. The Japanese yen weakened 1.9 per cent, while the British pound fell over 1 per cent on fiscal concerns and anticipated tax increases.

Impact of Trade and Foreign Investment

The Bank of Baroda report further highlighted that foreign portfolio investor (FPI) flows remain subdued amid uncertainty over potential US tariff changes and their implications for India's exports. "Any positive development on the trade front is likely to lift investor sentiments," it added.

With global monetary policy shifts, renewed US data flow, and evolving trade negotiations, the rupee's near-term trajectory will depend largely on external cues rather than domestic fundamentals, the report concluded.

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