The Indian rupee continued its upward momentum for the third consecutive session, gaining 25 paise to settle at 86.56 against the US dollar on Tuesday. The domestic currency strengthened due to positive cues from the equity markets and a weak US dollar, despite volatility in crude oil prices.
At the interbank foreign exchange, the rupee opened at 86.71, fluctuating between an intraday high of 86.54 and a low of 86.78 before closing at 86.56. This marks a cumulative appreciation of 67 paise over the last three trading sessions. The currency had previously gained 24 paise on Monday and 17 paise on Thursday. The forex market was closed on Friday in observance of the Holi festival.
Factors Driving the Rupee’s Appreciation
According to forex traders, the decline in the US dollar came after disappointing economic data from the United States, leading to a weaker greenback. Additionally, the strength of Asian currencies provided further support to the rupee. However, rising crude oil prices capped significant gains, as Brent crude surged 1.31% to $72 per barrel in futures trading.
Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, expects the rupee to maintain a positive bias given the weak dollar and strong global equities. However, he cautioned that rising oil prices and foreign institutional investor (FII) outflows might limit further appreciation. The USD-INR spot price is anticipated to trade within the 86.3 – 86.80 range in the near term.
Meanwhile, Dilip Parmar, Research Analyst at HDFC Securities, highlighted the impact of robust economic data and optimism in the markets. He noted that foreign fund inflows have been supportive of the rupee, adding that the USD-INR spot rate has immediate support at 86.42 and resistance at 86.90.
Global and Domestic Market Influences
The dollar index, which measures the strength of the US currency against a basket of six major currencies, fell 0.04% to 103.32.
On the domestic macroeconomic front, India’s trade deficit fell to a three-and-a-half-year low, but concerns remain as exports have contracted sharply. Imports also witnessed the most significant decline in 20 months, largely due to a drop in oil and gold imports.
Traders are also keeping a close watch on US President Donald Trump’s proposed reciprocal tariffs and sector-specific trade restrictions set to take effect on April 2, which could impact the rupee’s trajectory.
Stock Market Performance and FII Activity
The domestic equity markets registered strong gains, further supporting the rupee. The BSE Sensex soared 1,131.31 points (1.53%) to close at 75,301.26, while the Nifty climbed 325.55 points (1.45%) to end at 22,834.30.
Additionally, FIIs purchased equities worth Rs 694.57 crore on a net basis on Tuesday, as per exchange data, indicating continued investor confidence in the Indian markets.
Outlook
With traders closely monitoring upcoming US industrial production and housing sector data, along with the Federal Open Market Committee (FOMC) meeting, market participants remain cautiously optimistic. While the rupee’s upward trend may persist in the short term, external factors like crude oil prices and global trade policies will play a crucial role in determining its future course.