Rupee Ends Two-Day Rally to Settle at 94.60 Against US Dollar

The Indian rupee faced a slight setback on Tuesday, breaking its two-session gaining streak to settle 2 paise lower at 94.60 against the US dollar. Despite a backdrop of cooling crude oil prices and geopolitical optimism, domestic currency performance was tempered by persistent foreign capital outflows.

Geopolitical Shifts and Crude Oil Impact

The global energy landscape provided a supportive cushion for the rupee, even as it failed to sustain upward momentum. Brent crude, the global oil benchmark, saw a decline of 1.68 per cent, trading at $81.77 per barrel in futures trade. This softening in oil prices is a critical factor for the Indian economy, which imports nearly 90 per cent of its oil requirements.

A major driver behind this trend is the emerging US-Iran peace framework. With US Vice President JD Vance set to lead the American delegation for the formal signing of the peace deal in Switzerland this Friday, markets are anticipating the reopening of the Strait of Hormuz. As a vital global energy shipping route, the de-escalation of tensions in West Asia acts as a "favourable wind" for the rupee by stabilizing energy costs.

FII Outflows Cap Currency Gains

While the broader macroeconomic indicators suggested strength, the interbank foreign exchange market saw the rupee open at 94.69 and fluctuate within a range of 94.48 to 94.71. The primary headwind preventing a deeper recovery was the continued selling pressure from Foreign Institutional Investors (FIIs).

Even though domestic 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 close at 23,989.15—FIIs remained net sellers. According to exchange data, foreign investors offloaded equities worth ₹749.18 crore during the session, creating downward pressure on the domestic currency.

Expert Outlook and Resistance Levels

Despite the minor slip, market analysts maintain a constructive view of the rupee's near-term trajectory. The USD-INR spot price is expected to trade within a defined corridor, with analysts predicting a range between 94.10 and 94.90.

Dilip Parmar, research analyst at HDFC Securities, suggests that the USD-INR is likely to maintain a downward bias, with spot levels gravitating towards the 94.10 mark. However, he cautioned that 95.20 is expected to serve as a significant near-term resistance level, which could cap any sharp corrective moves in the currency's value.

Key Takeaways