On Thursday, the Indian rupee depreciated by 18 paise to close provisionally at 85.50 against the US dollar, driven primarily by strong dollar demand from importers and persistent foreign institutional investor (FII) outflows. Despite a positive rally in the domestic equity markets and a substantial decline in crude oil prices, the rupee lost ground against the greenback as global and domestic cues remained mixed.
Market Opening and Trading Range
The domestic currency opened at 85.53 at the interbank foreign exchange and exhibited a volatile trading session. It moved between an intra-day high of 85.48 and a low of 85.73. Eventually, the rupee settled at 85.50, reflecting an 18 paise fall compared to Wednesday’s closing level of 85.32.
This depreciation marked a shift in market momentum, as the rupee had demonstrated signs of strength in the previous two sessions. On Tuesday, the currency briefly appreciated to 84.62 before losing steam, while on Wednesday it touched 85.05 during intra-day trading and closed with modest gains of 4 paise.
Key Factors Driving the Decline
Forex traders pointed to a renewed demand for US dollars from importing companies as a key trigger for Thursday’s depreciation. Corporates, particularly those in oil, energy, and infrastructure sectors, sought dollars to fulfill payment obligations, thereby applying downward pressure on the rupee.
Simultaneously, continued FII outflows added to the weakness. Foreign investors remained net sellers in the currency markets while displaying mixed behavior in the equities segment. Although FIIs bought equities worth ₹931.80 crore on a net basis on Wednesday, the currency market did not see similar optimism.
Additionally, global risk sentiment showed signs of fragility as investors awaited critical economic data from the United States, further strengthening the dollar’s position during parts of the trading day.
Cushioning Factors: Domestic Markets and Crude Oil
Despite the depreciation, the rupee found some support from strong performances in domestic equities and a sharp overnight drop in global crude oil prices. Brent crude, the international oil benchmark, declined 3.72% and traded at $63.63 per barrel. The fall in oil prices alleviated concerns about India’s trade deficit, which typically widens when energy imports become more expensive.
Domestic equity markets also staged a robust comeback. After opening on a weak note, the benchmark BSE Sensex gained 1,200.18 points, or 1.48%, to close at 82,530.74. Meanwhile, the Nifty 50 index surged by 395.20 points, or 1.60%, to settle at 25,062.10. These gains helped contain the rupee’s losses by improving overall investor confidence in Indian assets.
Dollar Index and Global Sentiment
The US dollar index, which measures the dollar’s strength against a basket of six major currencies, traded lower by 0.28% at 100.75. This decline indicated a broad weakness in the dollar, driven by market anticipation ahead of key US macroeconomic data releases.
Investors monitored various US indicators, including the Producer Price Index (PPI), retail sales, Empire State manufacturing index, industrial production, and weekly unemployment claims. These metrics hold significant influence over the Federal Reserve’s monetary policy outlook.
Traders also awaited comments from US Federal Reserve Chair Jerome Powell, scheduled for later Thursday. Market participants expected Powell to provide direction on future interest rate cuts or continued policy tightening. His speech held particular importance as market sentiment had grown increasingly sensitive to central bank signals.
Analyst Outlook and Expected Trading Range
Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, noted that the rupee could trade with a positive bias in the coming sessions, especially if global risk appetite strengthens and geopolitical conditions improve. He highlighted easing tensions between India and Pakistan, along with progress in resolving trade tariffs between the United States and China, as supportive factors for the rupee.
According to Choudhary, the USDINR spot price may continue to fluctuate within a tight band of 85.20 to 85.90. He emphasized the importance of upcoming US economic data and its potential impact on investor positioning across currency markets.
Choudhary expects positive domestic equities and improved global sentiment to lend short-term stability to the rupee. However, he also acknowledged that persistent importer demand for dollars and potential delays in monetary easing by the Federal Reserve could create near-term volatility.
Technical Levels and Rupee Trajectory
Technically, the rupee faces resistance at 85.90 and support near 85.20. A sustained breach above the resistance could signal more weakness, possibly pushing the pair toward the 86.10 level. Conversely, a break below 85.20 could bring strength to the domestic currency, allowing a test of the 85.00 psychological level.
Forex participants remain cautious and prefer to wait for clearer signals from US inflation data and Powell’s commentary. Traders are also factoring in India’s export-import cycle, fiscal dynamics, and global commodity trends to position their currency portfolios.
Broader Economic Implications
The rupee’s depreciation, though marginal in the broader scheme, carries implications for various sectors. Importers, particularly those dependent on raw materials and energy, will experience higher input costs, potentially squeezing margins. Conversely, exporters may gain a temporary advantage as a weaker rupee makes Indian goods more competitive globally.
The Reserve Bank of India (RBI) has so far refrained from active intervention in the forex market during minor fluctuations. However, the central bank continues to monitor the exchange rate closely, especially with India’s inflation targets and external account stability in mind.
Conclusion: Balancing Headwinds and Tailwinds
The rupee’s close at 85.50 against the US dollar on Thursday highlights the delicate balance between external headwinds and internal resilience. While importer dollar demand and FII outflows exerted pressure, domestic equities and lower crude prices offered timely relief.
Investors now turn to key US economic releases and commentary from the Federal Reserve to gauge the near-term direction of the currency market. With geopolitical risks showing signs of cooling and India’s economy remaining fundamentally strong, the rupee may find support in the sessions ahead.
However, sustained global volatility and the dollar’s dominance could continue to test the currency’s strength. Traders, corporates, and policymakers must remain agile and adaptive, as currency markets remain deeply interconnected with macroeconomic variables and shifting investor psychology.
