The Indian rupee closed stronger against the dollar on Thursday after the US Federal Reserve's decision to cut the benchmark interest rate by 50 basis points.
The local currency appreciated 7 paise to close at 83.69 against the greenback. It had closed at 83.76 on Wednesday, according to Bloomberg data.
The Fed's rate cut was the first reduction after four years of high lending rates aimed at curbing inflation. It is seen as a move to protect the US economy amid mounting risks to the labour market, signalling a shift from its previous focus on controlling inflation.
The market had, to some extent, factored in the large rate cut, according to Anil Bhansali, executive director at Finrex Treasury Advisors LLP.
"While the Fed's decision was a significant development, its impact on the markets was limited," Bhansali added, noting that Brent oil prices dipped slightly to $73.31 per barrel and the Dow Jones Industrial Average slipped by 103 points overnight.
With rising imports in August, the Reserve Bank of India might not allow significant appreciation of the rupee, despite the Fed's "jumbo rate cut", Bhansali added.
Forex markets in India were closed on Wednesday for Eid-e-Milad, preventing the RBI from intervening at lower levels, a factor that contributed to the rupee's strength, according to CR Forex Advisors. "Without central bank interference, the rupee capitalised on the weakened dollar and favourable domestic conditions."
As global markets adjust to the Fed's policy shift, attention will now turn to the RBI's response and whether the rupee can sustain its momentum. For now, the rupee faces resistance at 84 and support at 83.50, the advisory firm added.
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