Rupee posts biggest one-day fall in over three weeks amid stronger dollar

The rupee weakened 59 paise against the US dollar as broad dollar strength, weaker Asian currencies, importer demand and foreign portfolio outflows weighed on sentiment

The rupee recorded its sharpest single-day decline in more than three weeks on Wednesday, weakening 0.61 per cent against the US dollar amid broad dollar strength and weakness in Asian currencies.

 

The domestic currency settled at 95.25 per dollar, down 59 paise from the previous close of 94.66 per dollar.

 

It has fallen 5.64 per cent so far in the current calendar year, whereas in the last one year, the local currency has weakened by 10.2 per cent against the greenback.

 

Since the start of the current financial year, it has weakened by 0.46 per cent.

 

The decline came as the dollar strengthened against major currencies after US Treasury yields rose, while most Asian currencies also traded lower. Traders said short covering in the dollar, continued demand from oil importers and corporates, and foreign portfolio outflows further weighed on the local currency.

 

 

"The Indian rupee declined for a third consecutive session, pressured by short covering and a strengthening US dollar against major currencies. Additional weakness across Asian currencies further weighed on the rupee," said Dilip Parmar, research analyst at HDFC Securities.

 

He said the breach of the 95 level has weakened market sentiment. "In the near term, spot rupee is expected to face resistance at 95.80 per dollar, while support is seen at 94.60 per dollar," Parmar said.

 

The yield on the benchmark 10-year government bond also inched up to settle at 6.76 per cent, up one basis point from the previous close.

 

The benchmark yield has inched up by 17 basis points in the current calendar year; however, in the current financial year, it has declined by 28 basis points.

 

"The yields went up because of the rise in US yields. There is natural demand in the bond market, and the current levels should hold up," said a dealer at a primary dealership.

 

Market participants said the RBI's large outstanding forward dollar positions also remained in focus. Traders said state-owned banks were seen buying dollars, likely on behalf of the Reserve Bank of India (RBI), which helped limit the rupee's losses during the session.

 

Latest data showed that the RBI's outstanding net short dollar position in the forward market increased to a record $106.66 billion at the end of May from $95.30 billion a month earlier.

 

While the RBI's measures announced last month to encourage foreign currency non-resident (bank) or FCNR(B) deposits are expected to support medium-term dollar inflows, traders said the inflows are likely to be absorbed into the central bank's foreign exchange reserves, limiting their immediate impact on the spot rupee.

 

“The majority of the capital inflows are likely to be in Q2FY27, led by the FCNR(B) scheme, which closes in September 2026,” said Gaura Sen Gupta, chief economist, IDFC First Bank.

 

“In the near term, there could be limited support to INR due to large BoP surplus in Q2FY27 and improved investor sentiment. By March 2027, we still expect mild depreciation in the INR against the dollar, with USDINR reaching 96.50,” Sen Gupta said in a note.

 

Market participants are now awaiting key US economic data, including labour market numbers, for further cues on the US interest rate outlook, while monitoring capital flows, crude oil prices and the RBI's intervention strategy.

 

“While the Reserve Bank of India’s recent measures to encourage FCNR(B) deposits are expected to support medium-term dollar inflows, the market believes much of these inflows will be absorbed into the RBI’s foreign exchange reserves rather than immediately strengthening the spot rupee,” said Kunal Sodhani, head of treasury, Global Trading Centre, FX & Rates Treasury, Shinhan Bank India.