The Indian rupee opened 13 paise higher at 95.26 against the US dollar on Friday, 10 July, supported by softer crude oil prices and a broadly weaker US dollar. However, traders remained cautious as the ongoing US-Iran conflict continued to weigh on market sentiment.
So far this week, the domestic currency has traded in a 95.60–94.96 range, with renewed military exchanges between the US and Iran weighing on the rupee. Expectations of intervention by the Reserve Bank of India (RBI), however, helped limit further downside.
Meanwhile, heightened geopolitical tensions have kept crude oil prices volatile. Brent crude fluctuated between $71 and $80.50 per barrel during the week and was last trading at around $76.34 per barrel, down nearly 2% from the previous session after a sharp rally.
US labour market remains resilient, supporting the dollar
According to market experts, the resilience of the US labour market continues to underpin the US dollar. Initial jobless claims fell by 2,000 to 215,000 last week, coming in below economists’ expectations of 217,000–218,000, while continuing claims remained at levels consistent with a labour market characterised by low hiring and low layoffs.
Experts said the latest data reduces the likelihood of an imminent interest rate cut by the US Federal Reserve. With policymakers also monitoring inflation risks stemming from higher crude oil prices, the combination of a resilient labour market and sticky inflation has kept the US Dollar Index well supported despite ongoing geopolitical uncertainty.
FPI inflows positive, but trade deficit continues to weigh
Market experts noted that foreign portfolio investment flows have improved, with overseas investors remaining net buyers of Indian equities for three consecutive weeks, bringing in nearly $3 billion. Debt inflows have also remained robust, with more than $5.25 billion entering Indian debt markets in June following the easing of investment norms.
However, experts cautioned that these inflows are unlikely to fully offset pressure from India’s large merchandise trade deficit, which has averaged $25–28 billion per month this year due to elevated crude oil and gold imports. With oil prices remaining volatile amid the ongoing US-Iran conflict and concerns over shipping through the Strait of Hormuz, they believe the external trade gap could widen further, limiting the support provided by foreign capital inflows.
Rupee Outlook
Amit Pabari, MD, Research Team, CR Forex Advisors, said As flagged in our reports over the past few sessions, USDINR was expected to drift back towards the 95.50 to 95.80 region, and we are now nearly there. Going forward, the environment stays uncertain, with geopolitical developments and oil prices likely to keep volatility elevated.
“The 95.10 to 95.20 zone is expected to act as a strong support area, and as long as it holds, the path towards 96.00 and beyond remains open,” said Pabari.
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