Rupee Drops To Nearly Two-Week Low, Closes Near 86 Against US Dollar

The Indian rupee opened 32 paise weaker at 85.91 against the US dollar on Wednesday, in comparison to its previous close of 85.59 on Tuesday. This sharp depreciation comes amid various global and domestic economic factors influencing the currency markets.

The domestic currency opened 16 paise weaker at 85.75 against the US dollar but weakened by 43 paise to 86.02 against US Dollar, the lowest level since May 23. "This spike was largely driven by equity outflows and squaring of offshore NDF (Non-Deliverable Forward) positions ahead of RBI MPC and NFP data," said Ritesh Bhanshali, director, Mecklai Financial Service Ltd.

He further added that the Rupee broke above the resistance level of 85.80. There was noticeable demand from foreign banks and oil companies adding to the upside pressure, he said.

Rupee had depreciated to 85.65 in the NDF market on Tuesday, the stronger dollar and renewed FII outflows from equity markets, which amounted to Rs 2,853.83 crore.

"However, RBI remains well-positioned to step in, with a comfortable reserve buffer of $693 billion, limiting the scope for any sharp rupee depreciation," said Amit Pabari, managing director at CR Forex Advisors.

He further added that robust domestic bond issuance are also supporting the rupee.

Additionally, the US dollar extended decline for the second day as the dollar index fell to 98.70 levels as ISM Manufacturing Imports Index crashed to 39.9 in May—a level not seen since 2009. Alongside, the Manufacturing PMI slipped further into contraction at 48.5, revealing a toxic mix of weak demand, falling output, and rising cost pressures.

On Wednesday, crude fell after rising for two consecutive session with Brent crude—the global benchmark for crude oil—fell 0.18% to $65.51 weighed by loosening supply and demand balance following increasing OPEC+ output and lingering concerns over the global economic outlook due to tariff concerns. Crude was up last week as OPEC+ boosted supply, in line with market expectations.

"Oil markets struggle to make major gains despite these disruptions," added Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.