The Indian rupee declined 0.24% to close at 87.2700 per U.S. dollar, pressured by aggressive dollar buying from oil importers late in the trading session. This movement reverses the earlier gains seen in early trade on Thursday, where the rupee had appreciated 14 paise against the US dollar.

Currency Movement

Despite opening at 87.04 and reaching an early high of 86.93 against the US dollar, compared to its previous close of 87.07, the rupee ultimately weakened by the end of the trading day.

Factors Influencing the Rupee

Several factors contributed to the rupee's performance:

1. Oil Importer Demand: Aggressive dollar buying from oil importers late in the trading session put pressure on the rupee.

2. Foreign Bank Activity: Foreign banks continued selling dollars against the rupee for the third consecutive day, which helped limit losses.

3. Debt Inflows: Initially, debt inflows masked the impact of dollar demand.

4. Upcoming Tariffs: The rupee faces headwinds from the upcoming August 27 deadline for additional 25% U.S. tariffs on Indian goods.

5. Geopolitical Tensions: U.S. Treasury Secretary Scott Bessent's recent comments about India profiteering from Russian oil purchases added pressure.

Market Developments

Despite the overall negative sentiment by the end of the day, earlier positive factors included:

• Positive domestic equities, with the Sensex rising 373.33 points to 82,231.17 and the Nifty gaining 94.3 points to 25,144.85 in early trade.
• Increased risk appetite in global markets.
• Hopes for peace between Russia and Ukraine, along with easing India-China tensions following Chinese Foreign Minister Wang Yi's visit to New Delhi.

Global Market Indicators

Looking Ahead

Currency analysts expect the rupee to remain weak in the near term. Market participants are keenly awaiting Federal Reserve Chair Jerome Powell's speech at Jackson Hole for guidance on U.S. interest rate direction. The rupee's performance in the coming days may be influenced by a combination of domestic factors, global market sentiment, and central bank policies.

The Indian rupee is facing mixed signals, with near-term weakness observed but potential for strengthening in the coming weeks.

Recent Performance

The rupee depreciated 3 paise to 87.16 against the US dollar in early trade on Wednesday, following weak Asian currencies and declining domestic equities. The currency opened at 87.16 and touched an early high of 87.10, compared to Tuesday's close of 87.13.

Market Factors

• Market participants are adopting a cautious stance ahead of potential Russia-Ukraine talks and Federal Reserve Chief Jerome Powell's upcoming speech at the Jackson Hole Symposium.
• The dollar index strengthened 0.10% to 98.36 after US Treasury Secretary Scott Bessent warned of additional tariffs against India for importing Russian oil and strengthening ties with China.
• Foreign Institutional Investors sold equities worth Rs 634.26 crore on Tuesday.
• Domestic markets declined with Sensex falling 146.64 points to 81,497.75 and Nifty dropping 47.5 points to 24,933.15.
• Brent crude traded 0.14% higher at $65.88 per barrel.

Positive Outlook

Despite the current weakness, experts project potential appreciation for the rupee:

• Ritesh Bhansali from Mecklai Financial expects the rupee to strengthen to 86.80 within two weeks if incremental 25% tariffs on India are removed and positive Russia-Ukraine developments continue.
• Anindya Banerjee from Kotak Securities forecasts the rupee reaching 86.75 against the dollar within a month, citing the currency's undervaluation compared to emerging market peers and potential for catch-up.
• Banerjee suggests domestic factors including likely GST reforms and high-frequency indicators showing economic slowdown could compel the Fed to cut rates.
• He estimates the dollar index could fall to 94 this year from current levels above 98, potentially allowing the rupee to appreciate to 85 against the dollar.

Russian Firms Accept Rupee Payments

The Russian Embassy in India has confirmed that all Russian firms are now accepting rupee payments for transactions. This move relates to payment mechanisms between Indian and Russian businesses, potentially facilitating smoother trade relations between the two countries.

Implications

The current weakening of the rupee against the dollar could have several implications for the Indian economy:

• Potentially higher import costs, especially for crucial commodities like oil
• Possible advantages for exporters as their goods become relatively less expensive in the global market
• Decreased attractiveness for foreign investments due to the currency's depreciation

However, the acceptance of rupee payments by Russian firms may provide some counterbalance, potentially reducing India's dollar demand for transactions with Russia.

Market participants will closely monitor upcoming economic data, geopolitical developments, and policy decisions to gauge the currency's future trajectory.