The Indian rupee ended lower on Monday, retreating by 23 paise to settle at Rs. 85.73 against the US dollar. A recovery in crude oil prices, coupled with weak domestic equity markets, weighed on the currency after a strong opening. Despite a broadly weaker greenback and improved global risk sentiment, dollar demand towards the month-end and subdued investor confidence constrained the rupee's momentum. Meanwhile, India’s foreign exchange reserves declined by USD 1.01 billion, adding to concerns. Analysts expect the rupee to trade within a narrow band in the near term, influenced by global cues and commodity price volatility.
Rupee Ends Lower Despite Positive Opening
The Indian rupee began the trading session on a stronger note, supported by global risk-on sentiment and softness in the US dollar. However, these gains proved short-lived as the local currency came under pressure from a sharp sell-off in domestic equities and a renewed uptick in global crude oil prices.
At the interbank foreign exchange market, the rupee opened at Rs. 85.48 per US dollar and touched an intraday high of Rs. 85.44. It later slipped to a low of Rs. 85.77 before settling at Rs. 85.73, marking a decline of 23 paise from the previous close of Rs. 85.50.
Crude Oil and Equities Weigh on Sentiment
Analysts attributed the rupee’s decline to a confluence of domestic and global factors. Chief among them was the rebound in international crude oil prices, which directly impacts India’s trade balance and inflation outlook. Brent crude futures inched up by 0.28% to USD 67.58 per barrel, reversing some of the previous week’s losses.
Additionally, bearish trends in the equity markets exacerbated the rupee’s weakness. The BSE Sensex shed 452.44 points, or 0.54%, closing at 83,606.46, while the NSE Nifty fell 120.75 points, or 0.47%, ending the day at 25,517.05.
Dollar Movement Offers Partial Cushion
Despite the rupee’s depreciation, the fall was limited by softness in the US dollar, which remained under pressure following favorable inflation data in the United States. The dollar index, which measures the greenback against a basket of six major currencies, slipped 0.26% to 97.14.
This backdrop provided some buffer to the rupee, preventing a sharper decline. Anuj Choudhary, a research analyst at Mirae Asset Sharekhan, noted that month-end dollar demand from importers and oil companies added downward pressure on the rupee. However, he projected that the rupee could benefit from continued weakness in the dollar, provided crude oil prices remain stable.
Choudhary forecast the USD/INR pair to trade within a range of Rs. 85.30 to Rs. 85.85 in the near term.
Foreign Exchange Reserves Dip Slightly
Adding to the market's cautious tone, India’s foreign exchange reserves fell by USD 1.01 billion, settling at USD 697.93 billion for the week ended June 20, according to data released by the Reserve Bank of India. This compares to a USD 2.29 billion increase in the previous week.
Although reserves remain robust and just shy of their all-time high of USD 704.89 billion recorded in September 2024, the marginal drop signals increased forex intervention or valuation adjustments amid currency volatility.
Foreign Capital Inflows Remain Supportive
On the capital flow front, foreign institutional investors (FIIs) remained net buyers in the equity markets. Data from stock exchanges showed FIIs purchased Indian equities worth Rs. 1,397.02 crore on a net basis on Friday, providing some cushion against broader market turbulence.
While such inflows typically support the rupee, their impact was limited by prevailing risk-off sentiment in Indian equities and global commodity dynamics.
Outlook: Narrow Range Seen as Volatility Persists
Looking ahead, the rupee is expected to remain range-bound with a mild upward bias, contingent on global dollar trends, crude oil movement, and capital flows. Market participants are also closely watching upcoming US economic data and commentary from the Federal Reserve for cues on interest rate direction.
While the rupee remains relatively resilient in the face of short-term shocks, sustained external headwinds and domestic economic dynamics will determine the currency’s trajectory in the coming weeks.
Conclusion:
The rupee’s decline to Rs. 85.73 against the US dollar underscores the currency's sensitivity to a mix of global and domestic pressures—rising oil prices, equity market volatility, and month-end dollar demand. While a weaker US dollar provided a cushion, structural factors such as external trade balances and policy cues will continue to shape the rupee's path. For now, investors and policymakers will monitor the macroeconomic landscape closely, seeking clarity in an increasingly nuanced foreign exchange environment.
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