Rupee Momentum Falters after Brief Rally below ₹85/USD

The Indian rupee opened 5 paise lower at ₹85.08 against the US dollar on Tuesday, retreating from Monday's close of ₹85.03. This pullback follows a brief rally where the currency appreciated to ₹84.96 intraday, marking its strongest level since December 2024. 

Supportive Factors Behind Recent Strength

The rupee's recent appreciation was underpinned by robust foreign portfolio investment inflows, with FIIs purchasing ₹2,474.1 crore worth of equities on Monday, contributing to a nine-day total of ₹34,974.1 crore. Additionally, India's industrial activity showed resilience, with the Index of Industrial Production (IIP) growing 3% year-on-year in March, rebounding from February's six-month low of 2.9%. ​

Global Influences and Market Sentiment

Globally, easing tensions and positive equity market performance have bolstered investor confidence. However, the dollar index rose by 0.17% to 99.17, reflecting a modest strengthening of the US currency. Crude oil prices continued to decline, with Brent crude down 0.77% to $65.35 per barrel, amid concerns over the US economy's health. ​

Domestic Indicators Offer Mixed Signals

India's industrial activity showed signs of recovery, with the Index of Industrial Production (IIP) growing by 3% year-on-year in March 2025, up from a six-month low of 2.9% in February. This positive development, coupled with a strong rally in equities, provided temporary support to the rupee. Despite these encouraging signs, the rupee remains susceptible to external shocks and market sentiments, as evidenced by its recent fluctuations.

Outlook and Market Dynamics

Market participants anticipate the rupee to trade within a range of ₹84.90 to ₹85.60 in the near term. The Reserve Bank of India's potential interventions around the ₹85 level could influence this trajectory. Additionally, geopolitical developments, particularly along the India-Pakistan border, remain areas of close monitoring for investors. ​

As April concludes, the rupee is poised to register a monthly gain of approximately 0.45%, reflecting India's relative economic stability amid global uncertainties.​

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