Rupee Rally: FPI Flows and RBI Strategy Crucial After India-US Trade Deal

• A knee-jerk rally in the rupee was observed following the India-US trade deal, marking its biggest single-day gain since 2018.
• ANZ Research's Dhiraj Nim states that the rupee's future movement hinges on RBI's intervention strategy and foreign portfolio investment (FPI) flows, especially in equities.
• Near-term strength is expected, but the rupee's appreciation will be tested by RBI's dollar buying to replenish FX reserves and sustained FPI sentiment.
• Structural factors suggest a medium-term weakening trend for the rupee against the US dollar, despite the recent rally.
• The RBI may aim to keep the rupee mildly undervalued to preserve competitiveness and support exports, especially with global trade challenges.

Why It Matters: The rupee's post-trade deal rally is temporary; FPI flows and RBI's reserve strategy will dictate its next move.