The Indian rupee strengthened against the US dollar on Tuesday, marking a positive close for the domestic currency. Sustained inflows into the domestic equity markets and a retreat in the American currency's value in global markets provided crucial support.
Rupee's Trading Session and Closing Level
At the interbank foreign exchange market, the local unit opened strong at 89.90 against the dollar. It witnessed an intraday high of 89.80 and a low of 89.95 during the session. Ultimately, the rupee settled for the day at 89.84 per US dollar, registering a gain of 14 paise from its previous close of 89.98.
Key Drivers Behind the Rupee's Appreciation
Forex traders pointed to several interconnected factors that fueled the rupee's rise. A primary catalyst was the robust performance of Indian equity benchmarks. Both the Sensex and the Nifty 50 ended the trading day with significant gains, which bolstered investor sentiment and attracted foreign capital.
Concurrently, the US Dollar Index (DXY), which measures the greenback's strength against a basket of six major currencies, was trading with a slight negative bias. This weaker dollar overseas made it less expensive for India to purchase other currencies, easing pressure on the rupee.
Additionally, traders noted that the rupee benefited from easing crude oil prices. As a major importer of oil, India's currency is sensitive to fluctuations in global crude benchmarks. Lower prices reduce the nation's import bill and current account deficit, which is generally positive for the rupee's valuation.
Broader Market Context and Expert Outlook
The positive movement occurred despite some underlying caution in the market. Participants remained watchful of potential intervention by the Reserve Bank of India (RBI) to curb excessive volatility in the currency market. Furthermore, the broader trend of foreign portfolio investment flows continues to be a critical variable for the rupee's trajectory in the near term.
Market analysts suggest that the rupee's near-term direction will likely hinge on a combination of domestic equity market trends, the dollar's movement against major global currencies, and the evolving geopolitical landscape impacting crude oil prices. While Tuesday's session ended on a positive note, the currency market is expected to remain responsive to these dynamic global and local factors.
