USD/INR: Rupee Gains as Oil Prices Fall – Societe Generale

At its strongest in over six months, the Indian Rupee has seen USD/INR fall below 94.00, according to Societe Generale’s EM team, including Santosh Ejanthkar and Tanmay Purohit. A steep fall in Brent has improved India’s terms of trade and inflation outlook. However, economist Kunal Kundu forecasts an acceleration in headline CPI, which would keep the RBI on course to raise rates in December.

Sector rotation and lower oil prices support India

"In EM, the INR is trading at its strongest level in more than six months, with USD/INR breaking below 94.00 as the sharp 16% decline in Brent crude last week provided a significant boost to India's terms of trade and eased concerns around the inflation outlook to an extent."

"Our economist Kunal Kundu is pencilling in acceleration in headline CPI to 6.3% yoy in October from 5.54%, which should keep the RBI on track for a 25bp rate hike to 5.75% in December."

"From flows perspective, cracks are also beginning to emerge in the global AI trade, helping to reshape regional equity performance."

"Semiconductor-heavy markets such as South Korea and Taiwan have come under pressure recently as investors rotate out of crowded technology positions, a dynamic that may prove relatively supportive for India given its lower direct exposure to the AI and chip cycle."

"Combined with lower oil prices and improving foreign investor flows, the shift has supported not just Indian equities but also the INR and local bonds, reinforcing the view that India could emerge as a relative beneficiary if the leadership within Asian equities broadens beyond the AI winners."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)