Rupee among Asia’s top performing currencies as AI trade cools

Mumbai: The rupee has turned out to be one of Asia’s best-performing currencies in FY27 after India’s emergence as a natural hedge against AI-heavy trades lifted the local unit in comparison with South Korea’s won and the Chinese renminbi – beneficiaries of artificial intelligence-themed investments.

A retreat of nearly a fifth in crude oil prices from their recent highs also benefited India, experts said, as the rupee quickly climbed the leaderboard, having populated the list of relative stragglers against the dollar through the first two quarters of FY27. The rupee has so far gained 0.97% in this fiscal year, while the won has appreciated over 11% and the renminbi gained 3.06%, Bloomberg data showed. The Indonesian rupiah, weakening 6.24%, is at the bottom of the pile.

“There has been a change in sentiment, with a pickup in foreign portfolio investor inflows into India. In the near term, there could be an appreciation bias for the rupee if there is a de-escalation in US-Iran tensions or if there is further correction in AI stocks,” said Gaura Sengupta, chief economist, IDFC First Bank.

Last week, foreign investors were net buyers of ₹38,971 crore in equities, and only about ₹452 crore came from the primary market. Exchange data showed ₹38,500 crore worth of stock was purchased in the secondary market.

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The rupee ended Monday at 93.92 a dollar. It had ended the last financial year at 94.83. This marks a major turnaround as the rupee threatened to breach the psychologically significant 97 level twice – in May and in October.

Further appreciation in the rupee will also depend on the extent of Reserve Bank of India intervention and the central bank’s comfort levels on excessive currency gains.Read more: Mid and smallcap stocks could see strong gains in 2027, but expect volatility, says Deepak Shenoy, Capitalmind Mutual Fund

RBI reportedly intervened in the market on Monday as well, limiting the rupee’s appreciation, dealers said. The RBI’s forward book stood at a net short dollar position of $239 billion as of September 2026, implying a large future dollar delivery obligation. Consequently, the central bank’s foreign exchange management strategy over the coming years is likely to focus on rebuilding its dollar reserves by accumulating foreign currency whenever capital inflows improve, experts said. Emkay Global‘s chief economist Madhavi Arora, too, expects RBI to use any sustained improvement in inflows to rebuild its foreign exchange buffers rather than allow a sharp appreciation in the rupee.

However, some analysts believe that the biggest form of intervention to cap appreciation in the rupee would be to stop providing dollars to public sector oil companies. RBI provided a special window for OMCs to remove a key source of dollar demand from the spot market in early October.

“I feel the central bank won’t absorb dollars and let the rupee strengthen; so one should expect some hedging demand from exporters too. Their first form of intervention to cap appreciation would be to let the oil companies tap dollars directly from the market,” said Anindya Banerjee, head currency research, Kotak Securities.

Banerjee expects the rupee to strengthen toward the 92.50-92.75 mark in the near term, provided FPI inflows remain sustained and crude oil prices do not see a fresh spike.

This follows a sharp depreciation that took the rupee to a record low of 96.96/$ in late May, with the currency trading close to those levels again in October.