The combination of an expected December flight by the Federal Reserve's interest rate hawks, and a rising inflation rate in India, has forced the Indian Rupee (INR) to battle the resurging tide of the USD since the beginning of November. The INR has moved from 65.4049 to 66.2051 in two weeks, heading once more towards the year’s high of 67.0299 seen in August, when China’s unexpected slowdown caused emerging currencies to rear-end the world’s second-largest economy in an economic highway pile-up.

Now at the end of the currency trading year, a look forward into the last six weeks of 2015 could see further challenges ahead for the INR. Low commodity prices are a mixed blessing for the underlying economy; cheaper oil may be reducing manufacturers’ overheads, but the domestic oil industry, which supplies around 25 percent of the country’s demand, is losing some inches from its bottom line. September saw slower growth at 3.6 percent across the eight core industries - in comparison to 6.4 per cent in August – leading to investor concerns and knitted brows over the possible implications on 2015-16 GDP growth targets of 8-8.5 per cent.

Geopolitical events have had a wide impact on currencies and indices worldwide, with India being no exception as investors deal with the shock of terrorist attacks in Paris, Beirut and the Sinai. Negative global sentiment was felt on the Sensex for several days after the attacks on November 13, along with a parallel decline in the INR. The markets took heart after a firm response by the international coalition fighting extremists in Syria, but given that the war has intensified there could be more shocks ahead on the international and domestic currency markets.

Although some way off from the record level of 65.9889 in April 2015, in the first two weeks of November, the INR has appreciated against the Euro, currently hovering around the level of 70.6609, compared to the level of 77.7910 this time last year. This could lead to some price opportunities for importers of EU products in the short term.

-Jameel Ahmad,

Chief Market Analyst, ForexTime