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The Indian rupee appreciated by 7 paise to 84.22 against the US dollar in early trade on Tuesday, buoyed by a sharp rebound in domestic equities and improved investor risk appetite.
Forex traders attributed the rupee's strengthening to positive market sentiment, bolstered by the MSCI equity index rebalancing. This process prompted a significant inflow of foreign funds, as Foreign Institutional Investors (FIIs) turned net buyers, breaking a 40-session streak of selling. FIIs purchased equities worth â¹9,947 crore on Monday, lending robust support to the Indian currency.
Additionally, the electoral win of the incumbent government in Maharashtra further boosted investor confidence, signalling economic and political stability. This sparked a rally in the equity markets, contributing to the rupee's upward movement.
At the interbank foreign exchange market, the rupee opened at 84.27 against the US dollar and moved within a narrow range, touching a high of 84.22. This marked a gain of 7 paise from its previous close of 84.29 on Monday, when the currency had already appreciated by 12 paise.
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"While uncertainties tied to Donald Trump's aggressive trade policies remain, the outlook for the rupee is cautiously optimistic," said Amit Pabari, Managing Director at CR Forex Advisors. Pabari noted that the Reserve Bank of India's (RBI) projection of a GDP growth rebound to 7.6% in the third quarter has instilled fresh confidence in India's economic prospects. He added that increasing capital inflows are expected to provide continued support to the rupee.
Pabari also highlighted the RBI's vigilant stance in managing currency volatility, suggesting that interventions at key levels could help maintain stability. "The USDINR pair is likely to face resistance around the 84.50 level, with an expected trading range of 83.80 to 84.50, leaning towards a downside bias," he remarked.
On the global front, US Treasury Secretary nominee Scott Bessent's fiscal deficit reduction plans limited US Treasury yields, while the dollar index, which measures the greenback's strength against a basket of six currencies, climbed 0.28% to 107.11.
In commodity markets, Brent crude, the global benchmark, rose 0.33% to trade at $73.25 per barrel in futures.
Domestically, the equity markets performed strongly, with the 30-share BSE Sensex gaining 167.76 points, or 0.21%, to reach 80,277.61 in early trade. The NSE Nifty also saw an uptick of 55.80 points, or 0.23%, closing at 24,277.70.
Foreign Institutional Investors (FIIs) played a pivotal role in Monday's rally, with their net purchases providing much-needed impetus to both the equity and currency markets, according to exchange data.
Despite external uncertainties, market sentiment remains cautiously optimistic as India's economic fundamentals continue to display resilience.
(With inputs from PTI)
