The rupee closed lower on Tuesday, snapping a five-day winning streak, as rising crude oil prices and a recovery in the dollar index weighed on sentiment.
The local unit settled at 85.20 against the US dollar, down 7 paise from its previous close of 85.13. Earlier in the day, it had opened flat at the same level.
Brent crude gained 1.60% to $67.32 per barrel, while the dollar index rose 0.08% to 98.36. Analysts attributed the rupee's weakness to profit booking, rising oil prices, and dollar short covering.
“On the domestic front, the rupee faced pressure from RBI's dollar purchases via state-run banks. However, optimism remains for Indian assets, supported by falling bond yields and strong foreign inflows,” said Amit Pabari, managing director at CR Forex Advisors. “With Indian equities up over 1.1% and Rs 4,000 crore of foreign fund inflows, the sentiment remains positive.”
Pabari expects the rupee to trade in a narrow band of 85.00 to 85.40 in the near term. “The 10-year bond yield has dropped to 6.317%, the lowest since December 2021, driven by expectations of further rate cuts and the RBI's supportive stance,” he said.
Globally, investors remained cautious after US President Donald Trump warned of an economic slowdown unless the US Federal Reserve cuts interest rates. “These comments, along with dovish Fed statements, pushed the dollar index to a low of 97.92—its weakest since April 2022,” said Pabari.
Mounting political pressure ahead of a massive $9.2 trillion debt refinancing could continue to influence Fed policy, he added. “A rate cut would ease short-term borrowing costs, though it could risk stoking inflation. Dollar index may find strong support at 98.00, while resistance lies at 99.50. A breakout could push it towards 101.50-102.00.”
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