The Indian rupee showed signs of strength in early trading on Thursday, appreciating by 10 paise to reach 87.59 against the US dollar. This uptick comes amidst a backdrop of a weakening dollar index and falling Brent crude prices, both factors typically supportive of the Indian currency.

RBI Intervention

The Reserve Bank of India (RBI) played a crucial role in supporting the rupee, intervening in the foreign exchange market to prevent the currency from breaching its all-time low. The central bank reportedly sold dollars at the 87.80 level, effectively creating a resistance point for the rupee's depreciation.

Market Factors

Several factors contributed to the rupee's movement:

• Dollar Index: The dollar index, which measures the greenback against a basket of major currencies, fell 0.16% to 98.07, providing some breathing room for the rupee.
• Crude Oil Prices: Brent crude, a significant import for India, traded 0.76% lower at $67.53 per barrel, potentially easing pressure on the country's import bill and, by extension, the rupee.
• Foreign Institutional Investors (FIIs): Despite the rupee's gains, FIIs continued their selling spree, with outflows amounting to ₹6,516.49 crore, limiting further appreciation of the Indian currency.

Domestic Market Performance

The positive movement in the rupee was in contrast to the performance of domestic equity markets:

This downturn in equity markets likely contributed to the muted gains in the rupee, despite favorable external factors.

US-India Trade Relations

Adding to the complex economic landscape, additional 25% US tariffs on Indian products took effect on Wednesday. This development could potentially impact trade relations between the two countries and may have implications for the rupee's valuation in the coming days.

Outlook

While the rupee has shown resilience, supported by RBI intervention and favorable global factors, the currency faces headwinds from domestic market weakness and ongoing FII outflows. The impact of new US tariffs on Indian goods will be closely watched by market participants as they assess the rupee's near-term trajectory.

The Indian rupee declined for the fifth consecutive session, closing at 87.68 against the dollar - its lowest level in three weeks. This development comes as the US Department of Homeland Security outlined procedures to implement an additional 25% tariff on Indian goods starting Wednesday.

Impact on Indian Exports

The new tariffs could result in duties of up to 50% for Indian exporters, potentially affecting 55% of India's $87.00 billion merchandise exports to the US. This move has raised concerns about the impact on India's export sector and overall economic growth.

Currency Market Dynamics

The rupee's decline was partially offset by dollar sales from banks, likely on behalf of the Reserve Bank of India (RBI). Currency analyst Dilip Parmar noted that the rupee faces weak bias due to dollar demand-supply imbalance and expects support at 87.90 with gains capped at 87.25.

Notably, the currency came close to its lifetime low of 87.95 hit in February, highlighting the severity of the current pressure on the Indian currency.

Regional Trade Implications

Exporter groups estimate that the tariff hikes could benefit competitors like Vietnam, Bangladesh, and China, potentially reshaping trade dynamics in the region.

Factors Contributing to Rupee's Decline

1. US Tariff Announcement: The confirmation of the additional 25% tariff on Indian imports has eliminated hopes of a compromise between the two nations.

2. Dollar Demand-Supply Imbalance: The currency market is experiencing an imbalance that is putting pressure on the rupee.

3. Global Competitiveness: The tariff hikes may give an advantage to India's competitors in the global market.

Outlook

As global trade tensions escalate, market participants will be closely monitoring further developments that could impact the rupee's trajectory in the coming days. The RBI's potential intervention and the government's response to these tariffs will be crucial factors to watch.