Rupee Strength = RBI Headache

The rupee has strengthened, USD/INR last down 0.2149 at 72.4375. A number of factors are helping to strengthen the rupee, there were reports earlier that China has received approval for plans to invest in India for the first time ever, the announcement comes amid talks to ease ongoing border tensions.

• Huge inflows into equity markets are also being adduced as a driver. On Feb 1 India revealed its latest budget which adopted an expansionary stance. Equity markets have been on firm footing since then, helped partially by foreign inflows. Data compiled by Bloomberg shows foreign buying of Indian equities to the tune of $4bn in February so far, the highest in Asia outside China.
• The increase in the rupee is another headache for the RBI. Inflation is already slightly above the midpoint of the RBI band, and has just come down from over 6% which had prompted talk that the RBI may be forced to hike rates to cool price pressures.
• Bullish momentum for the rupee could pick up if the rate manages a break of the the 100-week moving average barrier that's held since April 2018 at around 71.65
• Markets look ahead to the release of RBI minutes later in the session today, while focus for the rest of the week will be on GDP growth, a bumper figure has the potential to put further pressure on INR and the RBI.