The Indian rupee faces a test on Monday as AI market jitters calm. The currency is expected to open between 93.92 and 93.98 against the dollar. Traders said, "This non-AI and AI-linked trade is now very well established." Last week, foreign investors poured over $4 billion into Indian equities.
The Indian rupee's recent rally could face a test on Monday, with a tentative pause in AI-related market jitters potentially slowing the diversification flows into local assets.
The rupee is expected to open in the 93.92-93.98 range, traders said, after settling at 93.9050 to the dollar on Friday.
The currency surged more than 1% last week, buoyed by a sizeable pick-up in foreign inflows into Indian equities and a decline in oil prices.
Foreign investors poured more than $4 billion into Indian equities last week. South Korea and Taiwan, two markets that have benefited significantly from the AI trade, slumped last week, prompting foreign outflows.
A selloff in technology shares across the US and Asia after the Democratic Party sweep in the US midterm elections on Wednesday stoked concerns that it could impact sector growth.
That nervousness appeared to calm to an extent on Friday, with the Nasdaq recovering and futures pointing to a further advance. South Korean and Taiwanese markets rose on Monday.
"This non-AI and AI-linked trade is now very well established. So you just have to see how that is playing out, and that will determine how Indian equities and the rupee do," a currency trader at a bank said.
A nearly 20% plunge in Brent crude prices last week provided an additional reason for foreign investors to favour Indian assets.
For the rupee, capital flows and oil prices have been among the biggest sources of pressure over the past several months. A sustained turnaround in equity inflows, coupled with lower oil prices, could provide the currency with much-needed support.
Meanwhile, most Asian currencies weakened on Monday after an upside surprise in US payrolls strengthened expectations that the Federal Reserve could raise interest rates in December.