Indian Rupee Rallies to ₹85.50 on Weak US Data, Lower Oil Prices

Overview: A Strong Start for the Rupee

On June 27 the Indian rupee opened at ₹85.50 against the US dollar, a jump of 21 paise from its previous close of ₹86.71. Today marks the second consecutive day of gain and it is set to give the rupee its best weekly performance in several months. So what is causing the rally? A cocktail of weak global US dollars, softer oil prices, and renewed risk appetite in Indian equities.

Weak US Data Shifts Fed Outlook

A key catalyst for the rupee’s strength has been disappointing US economic indicators:

• Revised US GDP for Q1 showed a deeper contraction, led by weaker consumer spending.

• This raised hopes of an early Fed rate cut, possibly as soon as July.

• US 10-year Treasury yields dipped to two-month lows.

• The US Dollar Index (DXY) hovered near multi-year lows.

Takeaway: A weaker dollar boosts emerging market currencies like the rupee. Traders are now pricing in a more accommodative Fed.

Global Relief: Ceasefire and Crude Correction

Two external developments have offered relief to India’s currency outlook:

Since India is a net oil importer, falling crude prices ease inflationary pressures and reduce the import bill, giving a direct boost to the rupee.

Domestic Market Flows: FIIs Turn Net Buyers

Indian equities saw net FII inflows of ₹12,594.38 crore on Thursday, boosting rupee strength:

• Sensex and Nifty opened higher, supported by risk-on sentiment.

• The ongoing HDB Financial IPO is also attracting foreign interest.

Why It Matters: Higher foreign inflows mean more USD conversion into INR, strengthening the rupee.

INR Trading Range: Capped or Climbing?

According to treasury experts, the rupee is likely to trade between ₹85.35 and ₹85.95 during the day. However, some outflows could limit further appreciation:

• RBI dollar purchases to boost forex reserves

• JSW Paints-Akzo Nobel deal may lead to $1 billion outflow

Key Insight: While tailwinds exist, structural outflows and central bank actions may act as speed bumps.

RBI Position: More Room to Maneuver

According to the RBI bulletin:

• The central bank's short dollar position dropped to $73 billion.

• Near-term outstanding positions (within 3 months) are now just $15 billion.

This gives the RBI greater flexibility to intervene and stabilize the rupee when needed, without adding excess volatility to the market.

Global Context: INR Still Playing Catch-Up

Despite the rally, the rupee remains one of Asia’s weaker currencies for the month:

• INR down 0.2% month-to-date even after recent gains

• Other Asian currencies (like THB, SGD) have gained more against the dollar

Still, the INR’s recent momentum reflects improving fundamentals and global tailwinds that could extend into July.

What to Watch Ahead

Investors and businesses should track the following developments in the coming week:

• US PCE inflation data and Fed commentary

• Crude oil price trends

• Final HDB IPO inflow data

• Any large FDI or M&A-related outflows