The Indian rupee ended marginally higher on Tuesday, breaking its four-day losing streak as state-run banks and foreign lenders sold dollars. However, importers used the move to step up hedging activities, which capped the currency's gains according to market participants.

Trading Performance and Key Levels

The rupee's trading session showed modest but notable improvement across key metrics:

The local currency was supported by dollar offers from state-run banks and a change in the way the daily fixing was quoted. The fixing, which reflects the premium or discount bankers are willing to pay to buy or sell dollars at the Reserve Bank of India's reference rate, was quoted at a discount on the day, compared with a premium during most recent sessions.

Market Dynamics and Analysis

A discount in the fixing typically signals heavier interest in selling dollars at the RBI reference rate. Dilip Parmar, forex research analyst at HDFC Securities, characterized the rupee's recent recovery as largely a tactical bounce driven by foreign bank dollar supply and a tentative return of foreign inflows.

However, Parmar noted that the currency remains fragile as the structural mismatch between dollar demand from importers and limited supply persists. The trend remains neutral-to-bullish for the spot rate as long as it remains above 89.90.

Trading Constraints and Market Sentiment

Dollar demand from importers at any dip limited the rise in the local currency, despite dollar sales from state-run and foreign banks, according to traders. This dynamic highlighted the ongoing challenge of importer hedging activities constraining rupee appreciation.

Asian cues were mixed for the rupee, with the dollar index extending the pullback from Monday, while Asian currencies were rangebound. The focus this week is on a raft of U.S. economic data, particularly the U.S. jobs report due on Friday, for clues on how many times the Federal Reserve is likely to cut interest rates in 2026.

Outlook and Key Factors

The rupee's performance reflects the complex interplay between institutional dollar supply and persistent import demand. While state-run and foreign banks provided dollar liquidity that supported the currency, the structural challenges in the forex market continue to limit significant appreciation. Market participants remain focused on upcoming U.S. economic indicators that could influence Federal Reserve policy decisions and broader currency market dynamics.

The Indian rupee strengthened against the US dollar on Tuesday, gaining 18 paise to reach 90.12 in early trading sessions. The currency's appreciation came amid a softer greenback and declining global crude oil prices, though gains were capped by US President Donald Trump's tariff threats on India and sustained weakness in domestic equity markets.

Currency Performance and Opening Levels

At the interbank foreign exchange market, the rupee opened at 90.22 before gaining ground to 90.12, marking an 18 paise improvement from its previous close of 90.30. The currency had remained weak for four consecutive sessions before Tuesday's recovery, losing 10 paise on Monday as geopolitical uncertainty bolstered the dollar's appeal.

Trump's Tariff Threats Impact Market Sentiment

Despite the early gains, the rupee faced significant headwinds from geopolitical developments. Trump threatened India with additional tariffs if the country continued purchasing oil from Russia, creating uncertainty about future trade relations. According to Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, "Trump threatened India with more tariffs if India did not toe the line of not buying oil from Russia. The rupee continues to be hampered by the threats."

Bhansali warned of potential further weakness, stating there is "a good chance for the rupee to go back to 91 levels with the trade deal not happening in near future." This assessment reflects growing concerns about deteriorating trade relationships between the two countries.

Global Economic Factors and US Military Operations

The dollar's weakness provided some support to the rupee despite political tensions. The US ISM Manufacturing PMI came in lower than expected at 47.90, giving market indications of potential rate cuts due to a weakening economy. The dollar index was trading 0.04% higher at 98.22 after initially falling to 98.31 levels.

Adding to global uncertainty, the US carried out a military operation in Venezuela, deposing President Nicolas Maduro. Trump announced that the US would "run" the South American country and tap its vast oil reserves to sell to other nations, further influencing global oil market dynamics.

Domestic Market Pressures

Domestic equity markets reflected cautious investor sentiment, adding pressure on the currency. The sustained weak sentiment in Indian markets, combined with foreign institutional investor outflows, constrained the rupee's gains despite favorable global factors.

Market Outlook Amid Political Uncertainty

The rupee's performance reflects the complex interplay between supportive global factors and mounting political pressures. While softer crude oil prices and dollar weakness provided temporary relief, Trump's tariff threats and geopolitical tensions continue to weigh on the currency's prospects.

Forex traders noted that the combination of US tariff threats, FII outflows, and sustained weak sentiment in domestic equity markets capped sharper gains in the rupee. The currency's ability to maintain current levels will largely depend on the evolution of US-India trade relations and broader global market dynamics in the coming sessions.