Indian rupee claws back to 96.31 despite trade jitters
The Indian rupee opened slightly higher on Friday but remains perilously close to its all-time low as expiring US tariff relief and elevated oil prices outweigh a return of foreign equity inflows.
The Indian rupee opened 4 paise higher at 96.31 against the US dollar on Friday, snapping a four-session losing streak. However, the currency remains under heavy pressure, trading just 0.5% above its record low of 96.96 set in May.
The domestic currency's weakness persists despite a sharp reversal in foreign portfolio flows. Foreign institutional investors have purchased nearly $1.5 billion in Indian equities so far this month, a stark shift from the more than $5 billion in net outflows seen in June. Instead, elevated crude oil prices and fragile global risk sentiment continue to drag on the rupee.
The Reserve Bank of India has intervened almost daily in both the spot and non-deliverable forward markets to manage volatility. Traders observe that the central bank has kept the scale of these operations relatively measured despite the sustained sell-off.
Dollar resilience caps recovery
A softer US inflation print briefly weakened the greenback, with the US Dollar Index slipping to around 100.5. Headline consumer inflation eased to 3.5% and core inflation moderated to 2.6%, slashing market expectations of a July Federal Reserve rate hike from over 40% a week ago to just 11-12%.
Yet the dollar's downside remains limited because the broader US economy continues to show strength. Retail sales rose 0.2% in June and initial jobless claims dropped to 208,000, signalling healthy consumer spending and labour market conditions that prevent a sharp dollar depreciation.
Tariff deadline looms
Alongside macroeconomic headwinds, market participants are closely tracking the final stages of India-US trade negotiations. Temporary relief shielding Indian exports from higher US tariffs is scheduled to expire around July 22.
Analysts note that India is pushing for terms comparable to those secured by Vietnam and Indonesia. Failure to reach an agreement before the deadline would expose exporters to renewed tariff uncertainty, adding further risk to the Indian economy during a period of fragile global demand.
From a technical perspective, the pair has held a tight 96.20 to 96.30 range this week. According to Amit Pabari, managing director of research at CR Forex Advisors, "a sustained move past the 96.50 level could open the door to 96.80 to 97.00." Support sits at 95.80 to 96.00, with a deeper floor at 95.70.
