The Indian rupee opened 32 paise stronger at 94.93 against the US dollar on Thursday, 2 July, tracking a further decline in crude oil prices. However, traders believe the recovery may remain limited amid weakness in other Asian currencies and elevated US Treasury yields.
The domestic currency had fallen 0.6% on Wednesday, marking its steepest single-day decline in three weeks, after slipping below the 94.80-95.00 range, which market participants had considered a key near-term support zone.
Traders had expected the Reserve Bank of India (RBI) to defend this level, as the central bank had been seen intervening in recent sessions to prevent excessive depreciation beyond the 95-per-dollar mark.
Although the RBI reportedly sold dollars around the 94.75 level on Wednesday, traders said the central bank later stepped back, triggering a wave of stop-loss orders. Combined with weak cues from Asian currencies, the move accelerated the rupee’s decline before it recovered modestly at Thursday’s open.
RBI likely to absorb inflows, say experts
According to market experts, as foreign capital begins to return to India, the RBI is expected to continue absorbing a significant portion of these inflows instead of allowing the rupee to appreciate sharply. The central bank is likely to rebuild its foreign exchange reserves while ensuring excessive currency volatility remains in check.
US-Iran talks offer little clarity
Experts noted that although fresh indirect talks between the United States and Iran concluded, they failed to deliver a meaningful breakthrough toward a lasting peace agreement. While geopolitical tensions have eased from wartime levels, the lack of a durable resolution continues to keep global markets cautious.
Economic data signals moderation
Recent economic data from both India and the United States pointed to a moderation in growth, experts said. India’s manufacturing PMI eased to 54.2 in June, marking one of the slowest expansions since mid-2022.
In the US, private employers added 98,000 jobs in June, below May’s revised figure of 122,000 and market expectations of 113,000. Meanwhile, the ISM Manufacturing PMI slipped to 53.3 from 54.0, also missing forecasts.
Dollar remains resilient despite softer US data
According to experts, softer US economic data would typically weigh on the dollar. However, currency markets are currently being driven as much by investor positioning as by economic fundamentals.
They noted that Federal Reserve Chairman Kevin Warsh, speaking at the ECB Forum on Central Banking, acknowledged that inflation expectations have improved, although inflation remains above the Fed’s comfort zone. At the same time, investors have increased bullish positions in the US dollar, suggesting markets remain reluctant to move away from the greenback despite signs of slowing economic momentum.
Rupee Outlook
According to Amit Pabari, MD, CR Forex Advisors, said, for the last couple of weeks, we have been suggesting that USDINR could move towards the 95.30–95.50 zone, and the market is now almost there.
Yesterday’s move sends a strong message. Despite positive FII inflows and lower crude oil prices, the rupee weakened sharply. If the rupee cannot strengthen on good news, any negative development could easily push USDINR towards the 95.80–96.00 zone.
For now, the bias remains to the upside, with 94.80 likely to act as an important support level.
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