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What is the story about?
The Indian rupee opened weaker on Wednesday (February 4) at 90.43 per dollar, down 16 paise from Tuesday’s (February 3's) close of 90.27, as its sharp trade-deal-driven rally ran into resistance near the psychologically important 90 level.
The currency had posted its biggest single-day gain in seven years on Tuesday (February 3) following a US–India trade agreement, but momentum stalled as dollar demand from large importers resurfaced. Bankers said the 90-per-dollar zone acted as a natural trigger for corporate hedging and dollar purchases.
During intraday trade, the rupee briefly strengthened to 90.0450, its best level since the rally began, before paring gains. Dealers said a major Indian conglomerate and other large corporates were active buyers of dollars, adding to demand.
A currency trader said the speed of the move—from around 92 to near 90 in a short span—forced many importers to lock in exchange rates. “That dynamic is likely to persist, and I would be surprised to see a sustained break below 90,” the trader said.
What really drives the rupee now?
Market participants say the near-term trajectory hinges less on daily moves and more on capital flows.
Early signs appeared encouraging. After weeks of selling, foreign portfolio investors (FPIs) turned net buyers on Tuesday, purchasing about $600 million in Indian equities, according to preliminary data.
Deutsche Bank noted that if foreign inflows strengthen meaningfully in coming months—helped by the trade deal and better offshore sentiment—the Reserve Bank of India (RBI) may allow further rupee appreciation rather than lean heavily against it.
External cues: mixed and volatile
Across Asia, most currencies traded in a narrow range, offering few clear signals for the rupee. Meanwhile, oil prices rose after US military action against an Iranian drone and armed boats approached a US-flagged vessel in a strategic waterway—developments that could pressure India’s current account if energy costs stay elevated.
Traders were also digesting US President Donald Trump’s nomination of Kevin Warsh as Federal Reserve chair, a choice seen as potentially more hawkish on monetary policy.
What the trade deal means for USD/INR
Elara Capital said the US decision to lower tariffs on Indian goods to around 18% places India broadly in line with peers and slightly better than competitors such as Bangladesh, Vietnam, and Thailand. The brokerage expects USD/INR to drift toward 88.50–89 in coming weeks if FPI inflows turn sustainably positive.
Investor sentiment and market supply
Harish Krishnan, CIO–Equity at Aditya Birla Sun Life AMC, said rupee weakness had been the main deterrent for foreign investors, more than valuations. While valuations have corrected, he warned that relentless supply of new equity issuances continues to challenge market sentiment.
-With Reuters inputs
The currency had posted its biggest single-day gain in seven years on Tuesday (February 3) following a US–India trade agreement, but momentum stalled as dollar demand from large importers resurfaced. Bankers said the 90-per-dollar zone acted as a natural trigger for corporate hedging and dollar purchases.
During intraday trade, the rupee briefly strengthened to 90.0450, its best level since the rally began, before paring gains. Dealers said a major Indian conglomerate and other large corporates were active buyers of dollars, adding to demand.
A currency trader said the speed of the move—from around 92 to near 90 in a short span—forced many importers to lock in exchange rates. “That dynamic is likely to persist, and I would be surprised to see a sustained break below 90,” the trader said.
What really drives the rupee now?
Market participants say the near-term trajectory hinges less on daily moves and more on capital flows.
Early signs appeared encouraging. After weeks of selling, foreign portfolio investors (FPIs) turned net buyers on Tuesday, purchasing about $600 million in Indian equities, according to preliminary data.
Deutsche Bank noted that if foreign inflows strengthen meaningfully in coming months—helped by the trade deal and better offshore sentiment—the Reserve Bank of India (RBI) may allow further rupee appreciation rather than lean heavily against it.
External cues: mixed and volatile
Across Asia, most currencies traded in a narrow range, offering few clear signals for the rupee. Meanwhile, oil prices rose after US military action against an Iranian drone and armed boats approached a US-flagged vessel in a strategic waterway—developments that could pressure India’s current account if energy costs stay elevated.
Traders were also digesting US President Donald Trump’s nomination of Kevin Warsh as Federal Reserve chair, a choice seen as potentially more hawkish on monetary policy.
What the trade deal means for USD/INR
Elara Capital said the US decision to lower tariffs on Indian goods to around 18% places India broadly in line with peers and slightly better than competitors such as Bangladesh, Vietnam, and Thailand. The brokerage expects USD/INR to drift toward 88.50–89 in coming weeks if FPI inflows turn sustainably positive.
Investor sentiment and market supply
Harish Krishnan, CIO–Equity at Aditya Birla Sun Life AMC, said rupee weakness had been the main deterrent for foreign investors, more than valuations. While valuations have corrected, he warned that relentless supply of new equity issuances continues to challenge market sentiment.
-With Reuters inputs
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