Rupee Weakens to ₹85.59 Amid Dollar Strength and Geopolitical Tensions
The Indian rupee continued its slide on Thursday, opening 17 paise weaker at ₹85.59 against the US dollar, marking a 0.16% monthly decline. The weakness mirrors broader pressure across Asian currencies, driven by a firm US dollar supported by strong economic data and hawkish signals from the Federal Reserve. Persistent foreign demand for the greenback and rising geopolitical tensions have further weighed on sentiment, prompting investors to reassess risk amid shifting global interest rate expectations. The rupee's weakness was further exacerbated by geopolitical tensions following a terror attack in Pahalgam, Jammu & Kashmir.This incident marks a significant escalation, injecting fresh uncertainty into regional risk perception.
Dollar Dynamics and Trade Signals
The US dollar index rebounded from a recent low of 97.92 to 99.94, driven by optimism over a potential de-escalation in US-China trade tensions. However, mixed signals emerged as US Treasury Secretary Scott Bessent clarified that President Donald Trump has not offered to reduce tariffs unilaterally, despite reports suggesting the White House is considering significant tariff cuts.
Foreign Institutional Inflows Provide a Buffer
Foreign institutional investors (FIIs) have continued to support Indian equities despite the rupee’s decline, helping limit further depreciation. On Wednesday, FIIs bought stocks worth ₹3,332.93 crore, marking six straight sessions of net inflows and pushing the four-day total above ₹21,200 crore. Attracted by strong corporate earnings and macroeconomic stability, these inflows have provided a buffer against external pressures. However, the rupee’s near-term trajectory remains sensitive to shifts in global risk sentiment and liquidity conditions.
Crude Oil Prices and Inflationary Pressures
As of 10:00 AM, Crude oil prices saw a modest uptick, with Brent crude rising 0.09% to $66.18 per barrel and WTI crude increasing 0.05% to $62.30 per barrel. Investors are weighing a potential OPEC+ output increase amid the mixed signals on trade tariffs. Rising oil prices could exert inflationary pressures on the Indian economy, potentially impacting the rupee's stability.
Domestic Factors and Central Bank Vigilance
On the domestic front, the Reserve Bank of India (RBI) has maintained a vigilant stance, closely monitoring currency movements and intervening as necessary to smooth volatility. India’s robust foreign exchange reserves provide the RBI with ample firepower to address excessive fluctuations, though the central bank has so far allowed the rupee to adjust in line with market forces. India’s economic fundamentals remain broadly supportive, with moderating inflation and steady GDP growth. However, the widening current account deficit and rising import costs-particularly for crude oil, continue to exert pressure on the currency.
Technical Outlook and Market Sentiment
Market participants are watching key technical levels, with the rupee’s support seen near ₹85.80 and resistance around ₹85.20. Breaching these thresholds could signal further directional moves, especially if global cues remain unfavourable. The rupee’s recent performance underscores the delicate balance between domestic resilience and external vulnerability. Investor sentiment remains cautious, as traders weigh the impact of global monetary policy shifts, geopolitical developments, and domestic economic indicators. The rupee’s trajectory will likely hinge on the interplay of these factors in the coming sessions.
Conclusion
The Indian rupee’s extended slide to ₹85.59 against the US dollar highlights the currency’s vulnerability to global headwinds, even as foreign institutional inflows offer some respite. The RBI’s prudent oversight and India’s underlying economic strengths provide a degree of stability, but the outlook remains sensitive to global developments and capital flow dynamics. The coming weeks will be crucial in determining whether the rupee can find firmer footing or faces renewed volatility amid an uncertain global backdrop.
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