Rupee inches up as dollar index moderates on US economic growth concerns

The rupee recovered losses to end higher than its previous close against the dollar amid a 1 per cent drop in the dollar index. The dollar weakened following concerns over a potential hit to US economic growth after its President Donald Trump imposed reciprocal tariffs on its trading partners.

 

The dollar index, which measures the strength of the greenback against a basket of six major currencies, dropped below the 102 mark on Thursday.

 

The local currency started the trading session on a weaker note at 85.75 per dollar. It, however, regained ground by the end of the day on the back of inflows, said dealers.

 

 

The rupee settled at 85.44 per dollar, against the previous close of 85.51 per dollar. It has appreciated by 0.2 per cent against the dollar in the current calendar year so far.

 

While most Asian currencies strengthened against the dollar, the rupee was the best-performing Asian currency among its peers with 0.8 per cent appreciation.

 

The domestic currency is expected to trade within a narrow range in the short term, given the lack of significant triggers, said market participants.  In the medium term, the local currency is likely to follow the movements of the dollar index, they said.

 

“After this event, we don’t see any significant triggers for rupee, we’ll see it trading in a range of 85.10 per dollar to 85.80 per dollar in the short term,” said the treasury head at a private bank.

 

India is facing a relatively softer tax rate of 27 per cent, compared to regional peers like China, Vietnam, and Thailand, which also boosted sentiment for the currency market.

 

As the rupee has already appreciated beyond 85.50 against the dollar, substantial appreciation is unlikely, market participants said. While the RBI has not been intervening aggressively now, the market expects that it will begin accumulating dollars in the future.

 

“The rupee will not appreciate much from here, moving to 85 is unlikely but at the same time, we will not see a significant depreciation. Earlier, we were looking at 88-89 per dollar at year end,” said Anshul Chandak, head of treasury at RBL Bank.

 

“The short-term and medium-term outlook for the rupee is a bit tricky at the moment. While India is relatively better positioned compared to other countries, especially those with significant manufacturing bases, the overall situation is still uncertain. A major positive factor is the drop in oil prices, which has been beneficial for India. The recent reversal in the rupee’s trend has caught many by surprise,” Chandok said, adding it’s likely that the RBI would start buying dollars.

 

In March, the rupee regained strength against the dollar, buoyed by inflows after hitting new lows earlier in the year. The RBI intervened in the foreign exchange market to curb excessive volatility and conducted buy/sell swap auctions. These measures helped inject rupee liquidity into the banking system while also supporting the rupee amid global uncertainties. As a result, the rupee strengthened significantly in March, recovering from nearly 88 per dollar to regain all losses for the calendar year.

 

“The RBI will most likely start buying dollars with no immediate threat for the currency. The dollar index is also likely to be under pressure on growth concerns,” said the treasury head at a state-owned bank. “If we look at the Real Effective Exchange Rate (REER), we are doing well on that front too,” he added.

 

The REER of the Indian rupee continues to moderate, falling to 102.37 in February, against 104.84 in January. The REER increased from 103.66 in January 2024 to 108.14 in November 2024, before moderating to 107.20 in December 2024.