The Indian rupee strengthened against the US dollar on Wednesday, recovering from its previous day's decline. The currency's appreciation was driven by strong domestic markets and optimism surrounding a potential India-US trade deal.

Rupee Performance

The domestic currency closed at 88.21 against the US dollar, gaining 8 paise from its previous close of 88.29. During the trading session, the rupee fluctuated between 88.15 and 88.35.

Factors Influencing Rupee Movement

1. Trade Deal Optimism: US President Donald Trump's statement about working on a trade deal with India boosted market sentiment.
2. Strong Domestic Markets: The robust performance of Indian equity markets supported the rupee.
3. Weak Crude Oil Prices: Lower oil prices typically benefit the rupee, as India is a major oil importer.

Market Indicators

Foreign Institutional Investors (FIIs) showed confidence in the Indian market, purchasing equities worth Rs 10,339.80 crore on Tuesday.

Economic Data

India's industrial production growth remained steady at 4.00% in September, with factory output expanding by 3.20%.

Market analysts expect the rupee to maintain a slight positive bias, supported by positive domestic markets and weak crude oil prices. However, month-end dollar demand from importers may limit sharp gains in the near term.

The Indian rupee declined 21 paise to 88.40 against the US dollar in early trading, pressured by month-end dollar demand from importers and rising global crude oil prices. The currency opened at 88.34 before slipping further, following a 36 paise drop to 88.19 in the previous session.

Market Factors

• The dollar index fell 0.12% to 98.66
• Brent crude rose marginally to $65.63 per barrel
• Markets are closely watching the Federal Reserve's policy decision
  • 97.8% probability assigned to a 25-basis-point rate cut

Domestic Market Performance

• Sensex gained 125.93 points to 84,904.77
• Nifty up 39.8 points to 26,005.85
• Foreign Institutional Investors sold equities worth Rs 55.58 crore in the previous session

Oil Imports

India's crude oil imports from the US reached 540,000 barrels per day in October, the highest since 2022, as part of efforts to diversify supply sources.

Recent Rupee Performance

In a separate trading session, the rupee experienced its largest single-day decline since September 23:

• Fell 40 paise to close at ₹88.24/$1
• Traded in a range of ₹87.85 - ₹88.30/$1

Influencing Factors

1. US-India Trade Deal: Initial gains due to potential reduced tariffs on India, later offset by dollar buying pressure
2. RBI Intervention: Described as mild compared to strong intervention in the previous week
3. Market Sentiment: Participants closely monitoring US-India trade deal developments

Outlook

Currency analysts expect the rupee to trade within a range of ₹87.80 to ₹88.30 against the dollar, with ₹88.30 seen as a key resistance point for the dollar.

Conclusion

The sharp fluctuations in the rupee's value underscore its vulnerability to both domestic and international factors. While trade deal speculations offered initial support, the subsequent weakening highlights the complex interplay of forces in the forex market. Investors and businesses engaged in international trade may need to closely monitor these developments, as they could have implications for import costs, export competitiveness, and overall economic stability.