Interbank Market News Scan: The Indian Rupee had been gaining strength against the US dollar over the last week.

All the chatter about BRICS countries creating an alternative reserve currency inspired me to take a closer look at the Indian rupee.  Also, the Indian population here in Atlanta gives me the impression that there is a vibrant and affluent community here.

The chart below appears to show a strengthening in the Indian rupee.

		27 February 2023	28 February 2023	1 March 2023	2 March 2023	3 March 2023
FX reported by Federal Reserve	USD/INR	82.6900	82.5700	82.4300	82.4100	81.9800
FX Reported by OANDA	USD/INR
	Bid	82.9291	82.7921	82.6718	82.4810	82.4677
	Ask	82.9378	82.7981	82.6774	82.4897	82.4784
	Spread	0.0087	0.0060	0.0056	0.0087	0.0107

While I tend to focus more on law and policy on my blog, sharing some insights on how brokers analyze spreads should be helpful.

According to 55Brokers, a provider of foreign exchange broker reviews, tight spreads can represent an urgency on the part of a broker to get a trade completed.  Depending on the trade strategy, tight spreads can minimize trader losses on price differences.  Technology is moving markets faster allowing brokers to offer tighter spreads.

Lastly, tighter spreads are a sign of greater liquidity, according to 55Brokers.  This means that capital is being attracted to the market.  Wider spreads may be an indication of either a less liquid market or that currencies are exhibiting volatility.

Data from OANDA appears to bear this out.  The bid on the USD/INR climbed from INR 74.9150 in January 2022 to INR 82.7266 in December 2022.  Spreads also tightened from INR 0.2500 in January 2022 to INR 0.0250 in December 2022.  As we shared earlier, tighter spreads are an indicator of greater liquidity, and in this case an indicator of greater demand, all things being equal, for the U.S. dollar.

Month/Year	Bid	Ask	Spread
December 2022	82.7266	82.7516	0.0250
November 2022	81.6407	81.6615	0.0208
October 2022	82.2511	82.3245	0.0734
September 2022	81.6381	81.6589	0.0208
August 2022	79.5674	79.7024	0.1350
July 2022	79.0920	79.3420	0.2500
June 2022	78.7380	78.8730	0.1350
May 2022	77.4133	77.5483	0.1350
April 2022	76.3781	76.5131	0.1351
March 2022	75.5100	75.6451	0.1351
February 2022	74.9430	75.1930	0.2500
January 2022	74.9150	75.1650	0.2500
Source: OANDA

We should also keep in mind that during that time period the US dollar saw steady increases in interest rates, an increase that likely contributed to the dollars attractiveness.

It is no wonder that India intervened in its foreign exchange market for the purpose of protecting the rupee against a strengthening dollar.  According to The Hindustan Times, the Indian foreign reserves rose to USD 505.519 billion, but this rise occurred after foreign reserves had peaked at USD 645 billion.  Indian foreign reserves had been pegged at USD 633 billion in 2022.

In the grand scheme, the data I am looking at is more of a snapshot, but has me asking if India plans to do the practical thing and maintain good currency relations with the U.S. and the BRICS?

Alton Drew

8 March 2023

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