The Indian rupee gained 16 paise to reach Rs 85.29 against the US dollar on Thursday, bolstered by a weaker greenback and a decline in crude oil prices. Forex traders noted that the rupee's recovery was also fueled by slowing US business activity and reduced US Treasury yields. Despite geopolitical tensions affecting market sentiment, the rupee remains supported by positive market conditions, including Foreign Institutional Investors (FII) inflows. Analysts predict that the rupee will continue to trade with a positive bias, although external factors, such as global risk sentiment, may limit its gains.
Rupee Rebounds as Dollar Weakens
After a brief two-day pause, the Indian rupee showed resilience on Thursday, strengthening by 16 paise to close at Rs 85.29 (provisional) against the US dollar. The currency's positive performance was primarily driven by the weakness in the US dollar, coupled with a decline in global crude oil prices. Forex traders attributed the rupee's recovery to the cooling of US business activity and a dip in US Treasury yields, with the 10-year yield falling by 3 basis points to 4.35%.
US Dollar and Crude Oil Trends Impacting the Rupee
The US dollar index, which tracks the greenback's strength against a basket of six currencies, fell by 0.51%, standing at 99.33. This decline in the dollar provided some relief to the rupee, as the greenback's weakness makes the domestic currency more attractive to foreign investors.
Furthermore, crude oil prices, a significant factor in India’s current account deficit and inflation, saw a decline. Brent crude, the global oil benchmark, rose by 0.65% to USD 66.55 per barrel. A decrease in oil prices is generally favorable for the rupee, as it reduces India's import bill and eases pressure on the domestic currency.
Geopolitical Tensions Weigh on Sentiment
Despite the rupee's positive performance, heightened geopolitical tensions impacted investor sentiment. The recent terror attack in Pahalgam, Jammu & Kashmir, which resulted in the tragic loss of 26 civilian lives, added a layer of uncertainty to the market. In response, India downgraded its diplomatic ties with Pakistan, expelling military attaches, suspending the Indus Water Treaty, and shutting down the Attari land-transit post. Prime Minister Narendra Modi vowed to bring the perpetrators to justice, intensifying market concerns.
Although such geopolitical developments generally weigh on market sentiment, the rupee was somewhat insulated by global trends, including continued inflows from Foreign Institutional Investors (FIIs), which bought Rs 3,332.93 crore worth of equities on Wednesday.
Market Outlook and Predictions
Market analysts anticipate that the rupee will continue to trade with a positive bias, largely due to the weakness in the US dollar and expectations of stable oil prices. Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, indicated that the rupee could see further support from FII inflows, provided that global risk sentiment remains favorable. Technical indicators suggest that the USD-INR spot rate could trade within a range of Rs 85 to Rs 85.70.
However, there are several external factors that could cap the rupee's gains. Geopolitical tensions, such as those arising from the situation in Kashmir, could introduce volatility into the market, while global trade disputes and uncertainties about US economic data, including weekly unemployment claims and durable goods orders, may also influence the currency’s trajectory.
Conclusion
While the Indian rupee has shown signs of recovery, supported by weaker US dollar trends and declining oil prices, it remains vulnerable to external shocks. Geopolitical tensions and market uncertainties could pose risks to its short-term strength, but sustained FII inflows and positive global market conditions may continue to provide support. Traders and investors will closely monitor upcoming US economic data and global risk sentiment to gauge the rupee's near-term outlook.
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