Rupee Ends Two-Day Rally, Settles at 94.60 Against US Dollar

The Indian rupee snapped its recent winning streak on Tuesday, closing slightly lower despite a backdrop of easing global crude oil prices. While geopolitical de-escalation provided support, significant foreign capital outflows from the domestic equity market prevented the currency from sustaining its upward momentum.

Market Movement and Volatility

The domestic currency faced a volatile session in the interbank foreign exchange market. After opening at 94.69 against the US dollar, the rupee fluctuated within a range of 94.48 to 94.71 before finally settling at 94.60. This 2-paise decline broke a strong recovery period where the rupee had gained 67 paise on Friday and 60 paise on Monday. Despite this minor setback, the currency remains under pressure as it navigates shifting global macroeconomics.

Crude Oil and Geopolitical Factors

A major driver for the rupee’s recent strength has been the cooling of tensions in West Asia. The potential US-Iran peace framework agreement—set to be formally signed in Switzerland by a US delegation led by JD Vance—has brought optimism to global markets.

This diplomatic progress is expected to lead to the reopening of the Strait of Hormuz, a critical energy artery. Consequently, Brent crude futures saw a decline of 1.68 per cent, trading at $81.77 per barrel. For India, which relies on imports for nearly 90 per cent of its oil requirements, lower crude prices act as a significant tailwind for the rupee by reducing the import bill and narrowing the current account deficit.

FII Outflows Cap Domestic Gains

While the Indian equity benchmarks showed resilience—with the BSE Sensex rising 544.15 points to 76,808.48 and the NSE Nifty gaining 135.25 points to 23,989.15—the forex market was dampened by institutional selling. Foreign Institutional Investors (FIIs) remained net sellers, offloading equities worth ₹749.18 crore during the session. This continuous outflow of foreign capital into the US dollar has acted as a primary headwind, capping the rupee's ability to capitalize on lower oil prices.

Expert Outlook and Support Levels

Market analysts remain cautiously optimistic about the rupee's near-term trajectory, expecting it to trade within a defined range. Anuj Choudhary, research analyst at Mirae Asset ShareKhan, expects the USD-INR spot price to fluctuate between 94.10 and 94.90.

Adding to this, Dilip Parmar of HDFC Securities suggests a downward bias for the USD-INR, indicating that spot levels may gravitate toward the 94.10 mark. However, he cautioned that 95.20 is expected to serve as a key resistance level, which could limit any sharp corrective movements in the currency's value.

Key Takeaways