Indian Rupee Gains Against Dirham Explained

The Indian rupee showed significant strengthening against the UAE dirham on Friday, as it fell below 84 against the US dollar when forex markets opened. This level was last seen in October 2024, indicating that regional currencies and foreign investor interest are providing strong support for the rupee.

What drives the rupee's strengthening?

On Friday, the rupee reached a peak of 83.83 against the US dollar, roughly equivalent to 22.84 dirhams. This marks about a 0.7% strengthening from the previous day's closing rate of 84.4875 (about 23.02 dirhams). On a weekly basis, this is nearly a 2% gain, which is significant in the currency market.

Experts mention several factors supporting the rupee's current rise:

Increased dollar inflows into the Indian stock market: foreign institutional investors have been buying Indian stocks for 11 consecutive trading days, the longest streak in the last two years.

A positive outlook on international trade agreements, especially concerning relations with the United States.

Liquidation of short positions, meaning a mass retreat by investors speculating on the rupee's weakening.

Analyst reactions and forecasts

In response to the market movements, several international analytical houses have revised their year-end forecasts for the Indian rupee. A Japanese financial institution, for example, previously expected a dollar rate of 87 but now sees the rupee closing around 84 by the end of the year.

Their analysis suggests that the Indian currency is expected to outperform most Asian currencies, especially if the US dollar begins to weaken globally. Additionally, more favorable trading conditions for India also support the exchange rate.

The role of banks and investors

During Friday's trading day, foreign banks were active participants in the market, likely selling dollars on behalf of depository clients. Meanwhile, fewer buy-side offers were made, contributing to the rupee crossing the 84 thresholds.

Why is this important for those living in Dubai?

For the Indian community living in Dubai, this exchange rate change is particularly noteworthy, as many regularly send money home or keep their savings in foreign currency. The strengthening rupee means that current remittances may be worth fewer Indian rupees than a few days ago—so it's worth following exchange rate movements, especially before significant money transfers.

Summary

The recent rise in the rupee can be traced back to both technical and fundamental reasons: foreign investor interest, positive trade prospects, and a weakening dollar all contributed to the Indian currency's ability to strengthen against the dirham. Future prospects also suggest stabilization or slight further strengthening, but it's always worthwhile to stay informed due to the rapidly changing environment of international financial markets.

(Source of the article based on the Forex stock exchange.)