Rupee Opens Slightly Lower Amid MSCI-Driven Outflows, Soft Oil and Weaker Dollar Provide Support

The Indian rupee opened marginally weaker on Tuesday at 85.15 against the US dollar, slipping 6 paise from its previous close of 85.09, according to Bloomberg data. The slight dip follows a volatile Monday session where the domestic currency briefly strengthened to 84.82 before paring gains to end around 85.08. The rupee is expected to trade in a narrow range of 84.75 to 85.50 through the day.

Traders attribute today’s mild weakness to anticipated outflows worth $900 million from Zomato due to MSCI index rebalancing, a factor that could weigh on the rupee despite subdued crude oil prices and a weaker dollar index. The US holiday on Monday led to thin global trading volumes, further amplifying volatility in the forex markets.

The US Dollar Index continues to trend below the key 99.00 mark, last quoted at 98.89 - down 0.4 percent - providing a tailwind for emerging market currencies like the rupee. According to Amit Pabari, Managing Director at CR Forex Advisors, the weaker dollar, combined with subdued Brent crude prices, is helping India manage its trade deficit. Brent was last seen trading 0.31 percent lower at $64.54 per barrel, while WTI dropped 0.42 percent to $61.27 per barrel as of 9:15 AM IST.

Adding to the rupee's support is a strong pipeline of upcoming initial public offerings, which are likely to attract foreign portfolio inflows. A report by Union Bank of India noted that improved domestic stability, signs of a global recovery, and a potential US-India trade deal could further bolster sentiment for the Indian currency. The deal, if announced before July 8, may include relief from the additional 26 percent tariff on Indian exports, offering a medium-term positive for the rupee.

However, near-term headwinds persist. Market participants are cautious ahead of the RBI’s upcoming monetary policy meeting amid speculation of a rate cut, which could put downward pressure on the currency. Technically, the USD/INR pair faces resistance around 85.50 and strong resistance near 85.90. Support levels are seen at 84.80, with a further decline possible towards 84.45 if breached.

Anil Kumar Bhansali of Finrex Treasury Advisors noted that every uptick near the resistance levels should be viewed as a selling opportunity, given the existing macro triggers and foreign fund outflow expectations.

Overall, while a weaker dollar and soft oil prices offer a temporary cushioning, the rupee’s path remains influenced by external flows, monetary policy cues, and the geopolitical trade landscape.

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