Rupee Erases Weekly Gains to Close at 95.21 as Dollar Demand Overwhelms US Jobs Data Boost

Mumbai, July 5: The Indian rupee experienced a volatile trading week, ultimately closing at 95.21 against the US dollar, marking a weekly decline of nearly 1% and slipping past the 95 per dollar level for the first time in three weeks.

The currency’s trajectory was shaped by a tug-of-war between a weaker US dollar following disappointing US jobs data and persistent domestic dollar demand from importers, corporate hedgers, and non-deliverable forward market maturities.

The rupee opened the week at 94.3675 per dollar on Monday after Indian financial markets remained shut on Friday for a local holiday.

Rupee Treads Water at 94.37 as Iran-US Truce and Oil Slump Provide Support

The rupee began the week little changed at 94.3675 per dollar in early trade on Monday, hovering near its Thursday close of 94.9350. The currency had been trapped between 94 and 95 over the preceding fortnight as a sharp fall in oil prices, combined with policy measures to attract dollar inflows, helped snap its bearish trend.

Brent crude oil prices fell to USD 72.5 per barrel, their lowest since February 27, and were down more than 20% in June. The RBI’s intervention strategy was evident, with a trader at a state-run lender noting that the central bank “does not appear inclined to allow the rupee to weaken beyond 95, while clustered importer demand has been limiting gains around 94”.

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Asian currencies were mixed, with oil-sensitive units showing only mild reactions to Middle East hostilities. The dollar index remained perched near a 13-month peak at 101.37.

Rupee Opens 5 Paise Higher at 94.35 as Lower Oil Prices Support Sentiment

Tuesday saw the rupee strengthen modestly, opening 5 paise higher at 94.35 against the US dollar, supported by lower oil prices. Analysts suggested the rupee would likely trade within the 94-95 range, with strong capital inflows providing a buffer against a firm US dollar.

The currency’s recovery from its record low of 96.96 in May was gaining traction, with the rupee now on course for a monthly and quarterly gain. Traders remained watchful, however, awaiting a break of the currency’s prevailing range for clearer directional trends.

Rupee Opens 2 Paise Lower at 94.68 as Asian Weakness and US Yields Weigh

Wednesday brought renewed pressure as the rupee opened 2 paise lower at 94.68 against the US dollar. Weaker Asian currencies and higher US Treasury yields contributed to the decline, though RBI interventions continued to limit downside. Market focus had shifted from oil prices to expectations of a US Federal Reserve rate hike in September, impacting Asian currencies including the rupee. Traders were also eyeing potential India-US trade agreement developments that could boost investor confidence and support the rupee’s outlook.

Rupee Weakens to 95.39 Despite RBI Support as Dollar Demand Intensifies

Thursday witnessed significant depreciation pressure as the Indian rupee weakened to 95.39 against the dollar, despite lower oil prices and central bank intervention. Demand from foreign banks, oil marketing companies, and investor outflows pressured the currency, with the rupee paring initial gains to settle lower by 19 paise at 95.35. “Ever since the rupee touched the Rs 94.14 level last month, there has been no letup in buying dollars despite the flows into the bond market,” analysts from Finrex Treasury Advisors noted.

Foreign investors extended their selling spree in June, withdrawing Rs 49,340 crore (USD 5.16 billion) from Indian equities, triggered by global risk aversion, preference for developed markets, soaring US bond yields and stretched domestic valuations. Total Foreign Portfolio Investor withdrawals from Indian equities surged to Rs 2.7 lakh crore so far in 2026, surpassing the Rs 1.66 lakh crore pulled out during the entire calendar year 2025.

Rupee Jumps 19 Paise to 95.20 as Weak US Jobs Data Crushes Fed Rate Hike Bets

Friday delivered a sharp recovery as the rupee opened 19 paise higher at 95.20 per dollar, snapping a four-day losing streak. Data from the US payrolls showed the weakest payroll print in four months, with the economy adding only 57,000 jobs in June against expectations of 110,000.

This prompted the dollar index to retreat from its recent 15-month high near 101.6 to around 100.90. The dollar index was down 0.2% at 100.77, on course for its biggest weekly loss in 12 weeks. Markets priced in about a 53% chance for a Fed rate hike in September, down from roughly 75% before the employment report.

Most Asian currencies were up between 0.1% and 0.4%. The rupee traded in a range of 95.16-95.35 during the session before closing at 95.21, registering a rise of 14 paise from its previous close.

Dollar Demand and NDF Maturities Blunt the Rupee’s Gains

Despite the positive sentiment from a weaker dollar, the rupee’s gains were capped by persistent dollar demand. Dollar demand linked to maturing positions in the non-deliverable forward market and large merchant payments pressured the currency throughout the week.

“USD/INR has been on a rollercoaster ride even before the Iran conflict, driven by a combination of weak capital inflows and also rising foreign direct investment repatriation,” MUFG said in a note. “Nonetheless, RBI’s FX measures have started to stabilise the Indian rupee”.

The RBI was actively purchasing dollars to rebuild its foreign exchange reserves, which had dropped to roughly USD 672.6 billion from a February peak of USD 728.49 billion.

India’s Forex Reserves Drop USD 5.65 Billion to USD 666.93 Billion

India’s foreign exchange reserves declined by USD 5.654 billion to USD 666.933 billion during the week ended June 26, the RBI said on Friday. In the previous reporting week, the kitty had jumped USD 963 million to USD 672.587 billion.

The reserves had expanded to an all-time high of USD 728.494 billion during the week ended February 27 before the onset of the West Asia conflict, which led to several weeks of decline as the rupee came under pressure and the RBI intervened through dollar sales.

Foreign currency assets decreased by USD 150 million to USD 541.067 billion, while gold reserves declined by USD 5.394 billion to USD 102.536 billion. Special drawing rights were down USD 89 million at USD 18.558 billion, and India’s reserve position with the IMF fell USD 21 million to USD 4.772 billion.

RBI Warns Weak Monsoon Could Complicate Growth-Inflation Outlook

The RBI’s June bulletin flagged below-normal monsoon rainfall as a key risk to India’s growth and inflation outlook. The rainfall deficit had widened to 42.2% of the long-period average as of June 21. “An adverse south-west monsoon, if materialised, may weigh on the domestic growth-inflation outlook,” the State of the Economy article said.

The central bank expects real GDP growth to moderate to 6.6% in 2026-27, down from 7.7% recorded in 2025-26. Consumer price index inflation is projected at 5.1% for the current financial year. CPI inflation had risen to 3.9% in May 2026 from 3.5% in April, driven by broad-based increases across food, fuel and core components.

Despite external uncertainties, India continued to benefit from resilient domestic demand, healthy foreign exchange reserves and a manageable current account deficit.

Goldman Sachs Upgrades India’s GDP Growth Forecast to 6.8% for CY26

Goldman Sachs raised India’s GDP growth forecast to 6.8% for calendar year 2026 from 6.5% earlier, following the US-Iran peace deal that led to lower global oil prices and eased supply chain disruptions. The investment bank also lowered its inflation and current account deficit projections, citing easing oil prices and improving domestic economic conditions. The Asian Development Bank projects India’s GDP growth at 7.3% for the next fiscal year.

RBI’s Reform Measures Expected to Attract USD 40-70 Billion in Capital Inflows

The RBI’s forex swap measures on FCNR (B) deposits and external commercial borrowings by state-owned companies could attract USD 60-70 billion in foreign capital and support the rupee, according to India Ratings and Research. An SBI report suggested the RBI’s reform push may attract USD 40 billion in capital inflows, potentially pulling the rupee back toward the 92-93 per dollar range.

MUFG projected the USD/INR at 94.00 by the third quarter of September before rebounding towards 96.00. ANZ economist Dhiraj Nim expected the USD/INR to remain stable around 95.0 in the near term, with 93.50-94.0 as an important floor to watch. “Any downward pressure on the spot rate will likely be offset by the RBI’s FX absorption to fortify its FX reserves,” Nim said.

Market participants should monitor the upcoming US inflation data and Federal Reserve communications for further cues on the rate path, as the probability of a September hike now stands at 53%. The RBI’s ongoing dollar purchases to rebuild reserves and the monsoon’s trajectory remain key domestic factors influencing the rupee’s direction. Importers and exporters are advised to track the 94-95 range closely, as the central bank appears committed to maintaining stability within this band.

Source: https://rbi.org.in/