The Indian Rupee rises at the start of Tuesday trading. EUR/INR shows an increase, trading at 95.65 from 95.38. Similarly, GBP/INR rises to 112.32 from its previous 112.00.

India’s economy has grown at an average rate of 6.13% from 2006 to 2023. This growth attracts foreign investment, increasing demand for the Rupee. Fluctuations in Dollar demand by Indian importers also impact the Rupee’s value.

Oil prices affect the Rupee since India imports most of its oil. Rising oil prices increase the demand for USD, leading Indian importers to sell more Rupees, potentially depreciating its value.

Inflation impacts the Rupee in multiple ways. High inflation suggests more money in circulation, lowering Rupee value. If inflation surpasses the 4% target, the Reserve Bank may raise interest rates, strengthening the Rupee and attracting foreign investment.

India’s trade deficit means it imports more than it exports, leading to periods of high US Dollar demand. Seasonal demands, order volume increases, or market volatility can drive this demand up, weakening the Rupee as it is exchanged for Dollars.

This morning’s uptick in the Rupee marks a continuation of the recent firming trend, as both EUR/INR and GBP/INR exhibit mild appreciation. Specifically, EUR/INR nudged upwards from 95.38 to 95.65, while GBP/INR moved from 112.00 to 112.32. These movements reflect persistent investor interest in Indian assets amid steady economic performance.

To unpack this rightly, we need to view the appreciation in a wider context. Between 2006 and 2023, India’s economy expanded on average by just over 6% per year. That level of long-term consistency has historically appealed to foreign investors, making Indian financial instruments more attractive. When capital flows into the country increase, INR demand rises too. As a result, the Rupee appreciates—as seen in today’s early performance.

A deeper influence, though more variable, is the demand for the Dollar within India, particularly from importers. Local firms purchasing goods, machinery, or services from abroad must exchange Rupees for Dollars. This creates waves of demand for the USD at times, and when these waves swell, like during periods of bulk imports or seasonal contracts, the INR tends to lose ground.

We also need to keep our eye closely on oil. Even modest changes in crude prices feed directly into foreign exchange movements. Since India is heavily reliant on oil imports, a global increase in price forces Indian importers to purchase more USD to cover costs, effectively applying downward pressure on the Rupee in the process. If oil prices remain elevated, we can reasonably expect the Rupee to face resistance.

Turning to inflation—its role is double-edged. Internal inflation above the 4% comfort zone tends to erode real value, which logically reduces faith in the domestic currency. However, inflation can push the Reserve Bank to act. When rates are increased to contain rising prices, India becomes attractive to yield-seeking foreign capital. This inflow pulls the offshore community into INR-denominated investments, thereby supporting the Rupee.

India does operate at a trade deficit, so at all times there is an ongoing requirement for Dollars. This is not new territory, but it does mean that the pressure on the Rupee is never far away. Short bursts of outbound payments—whether linked to commodity purchases, increased shipping activity, or portfolio adjustments—can prompt sudden reversals in the Rupee’s path.

In light of these firm causal relationships, the next fortnight is likely to be shaped by what comes out in real numbers. Watch inflation prints. Keep an eye on international oil benchmarks. Understand how RBI commentary hints at rate trajectory. If import schedules normalise and external prices soften, we can expect INR to hold or rise. But any resurgence in energy prices or a pickup in import demand could push the currency onto the back foot.

From a strategy perspective, the key lies in reading demand signals and pricing them into positions early. Short-term volatility offers opportunity, but only when rates, trade data, and commodity inputs are all read against each other. Clerical adherence to macro data, particularly inflation and energy, will be vital in decoding near-term direction. Responses here should be tailored, measured, and informed by real flows, rather than headline surprise.