The Indian rupee opened 4 paise higher at 96.31 against the US dollar on Friday, 17 July, but continued to face pressure amid weakening global risk sentiment and elevated crude oil prices.
The domestic currency is on a four-session losing streak, having breached several key technical levels that market participants had expected to offer support. The rupee is now trading within 0.5% of its record low of 96.96 per US dollar, touched in May.
Market participants said the Reserve Bank of India (RBI) has continued to intervene almost daily in both the spot and non-deliverable forward (NDF) markets to curb excessive volatility. However, traders noted that the scale of intervention has remained relatively measured despite the sustained pressure on the currency.
The rupee has weakened even as foreign portfolio flows have improved, particularly in equities. Foreign institutional investors (FIIs) have purchased nearly $1.5 billion worth of Indian equities so far this month, marking a sharp reversal from the more than $5 billion in net outflows recorded in June. Despite the return of equity inflows, persistent concerns over rising oil prices and geopolitical tensions have continued to weigh on the domestic currency.
Softer dollar offers limited relief
Currency experts said the US dollar has weakened in recent sessions after softer-than-expected inflation data reduced expectations of an imminent interest rate hike by the US Federal Reserve.
The US Dollar Index slipped to around 100.5, hovering near a one-month low, after June inflation data showed headline consumer inflation easing to 3.5% and core inflation moderating to 2.6%. According to the data, market expectations of a July Fed rate hike fell sharply to around 11-12%, down from more than 40% a week earlier.
However, analysts noted that the greenback’s downside remains limited as the broader US economy continues to display resilience.
Strong US data caps dollar weakness
According to market experts, recent economic indicators suggest the US economy remains on a firm footing despite easing inflationary pressures.
US retail sales rose 0.2% in June, while initial jobless claims declined to 208,000, well below market expectations, indicating that consumer spending and labour market conditions remain healthy. Analysts believe this resilience is likely to prevent a sharp depreciation in the dollar, even as expectations of further monetary tightening ease.
India-US trade talks remain in focus
Apart from global macroeconomic developments, experts said investors are also closely tracking the progress of the India-US trade negotiations.
Market participants noted that the temporary relief shielding Indian exports from higher US tariffs is set to expire around 22 July, while negotiations remain in their final stages. According to analysts, India is seeking trade terms comparable to those secured by countries such as Vietnam and Indonesia, rather than accepting less favourable conditions.
Experts cautioned that if an agreement is not reached before the deadline, exporters could face renewed tariff uncertainty at a time when global demand remains fragile, adding another layer of risk for the Indian economy and financial markets.
Rupee Outlook
According to Amit Pabari, MD, Research Team, CR Forex Advisors, the pair has been trading in a 96.20 to 96.30 zone so far this week, and a sustained move past the 96.50 level could open the door to 96.80 to 97.00. On the downside, 95.80 to 96.00 should now act as the first support, with a deeper cushion at 95.70.
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