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

The Indian rupee faced a minor setback on Tuesday, ending a two-session winning streak to settle 2 paise lower at 94.60 against the US dollar. Despite positive global cues regarding crude oil and geopolitical de-escalation, domestic capital outflows prevented the currency from maintaining its momentum.

Market Volatility and Intra-day Movement

In the interbank foreign exchange market, the rupee showed significant volatility throughout the day. It opened at 94.69 against the greenback and fluctuated within a range of 94.48 to 94.71. After a strong recovery on Friday (up 67 paise) and Monday (up 60 paise), the currency finally closed at 94.60, slightly down from its previous close of 94.58. While the dollar index saw a marginal dip to 99.61, the rupee was unable to capitalize fully on the dollar's slight weakness.

Geopolitical Optimism vs. FII Outflows

Two major global factors provided a support floor for the rupee: the easing of tensions in West Asia and the expected reopening of the Strait of Hormuz. The US-Iran peace framework agreement, which is set to be formally signed in Switzerland this Friday with a delegation led by US Vice President JD Vance, has bolstered market sentiment.

However, these tailwinds were countered by domestic pressures. Foreign Institutional Investors (FIIs) remained net sellers in the Indian equity markets, offloading shares worth ₹749.18 crore. This outflow of foreign capital acted as a cap on the rupee's gains, pushing the currency lower despite the improving global landscape.

The Impact of Easing Crude Oil Prices

For an economy like India, which imports nearly 90% of its oil requirements, fluctuations in energy prices are critical. On Tuesday, Brent crude, the global oil benchmark, traded 1.68% lower at $81.77 per barrel.

Experts noted that lower crude prices act as a "favourable wind" for the rupee, reducing the demand for dollars to fund energy imports. The anticipated reopening of the Strait of Hormuz—a vital artery for global oil and liquefied natural gas (LNG) exports—is expected to keep these energy costs stable, providing a long-term positive outlook for the domestic currency.

Analyst Outlook and Resistance Levels

Despite the minor dip, market analysts remain constructive regarding the rupee's near-term trajectory. Research experts suggest a trading range for the USD-INR spot price between 94.10 and 94.90.

Dilip Parmar, research analyst at HDFC Securities, indicated that the USD-INR is likely to maintain a downward bias, with spot levels gravitating towards the 94.10 mark. Conversely, 95.20 has been identified as a key resistance level that could cap any significant corrective rallies in the dollar.

Key Takeaways