In early trade on Monday, April 7, the Indian rupee dropped by 19 paise to hit 85.63 per US dollar, continuing its losing streak under the weight of global trade war tensions, aggressive foreign institutional investor (FII) outflows, and apprehension over the Reserve Bank of India’s (RBI) upcoming monetary policy announcement.

The slide comes amid a wider economic unease triggered by the US government's reciprocal tariff imposition and China's retaliatory duties, which sent global equity markets tumbling to multi-month lows. Despite a decline in crude oil prices and a weaker dollar index, the domestic currency could not find support, reflecting underlying market distress.

Early Market Movement and Dollar Performance

The rupee opened at 85.79 against the dollar at the interbank foreign exchange market before marginally strengthening to 85.63, marking a 19 paise loss from its previous close. On Friday (April 4), the rupee had settled at 85.44, after falling 14 paise despite having gained 22 paise a day earlier.

Meanwhile, the dollar index, which measures the greenback against a basket of six currencies, was slightly lower at 102.71, impacted by disappointing US services PMI data and renewed concerns over inflation and growth due to the trade dispute.

Global Trade War Weighs on Market Sentiment

The sharp depreciation in the rupee is largely driven by escalating tensions in the global trade arena. The Donald Trump administration's sweeping tariff regime on nearly 60 countries, including China, led to retaliatory 34% import duties by China. This has deeply impacted market sentiment globally, contributing to an environment of uncertainty and risk aversion.

Indian investors are reacting to this trend by reducing exposure, which is evident in the FII sell-off.

FIIs Continue Heavy Equity Selling

Foreign Institutional Investors were net sellers of ₹3,483.98 crore worth of Indian equities on Friday (April 4), as per exchange data. The steady outflows are in sync with a broader global sell-off driven by fears of a prolonged trade war, tighter monetary policies, and reduced global growth expectations.

RBI Policy Decision Awaited

Adding to the uncertainty, the RBI’s Monetary Policy Committee (MPC) has commenced a three-day meeting, with a decision on benchmark interest rates expected on Wednesday (April 9).

Market participants are closely watching the MPC’s move, especially after the recent rise in inflationary pressures and potential need for rate adjustments to maintain economic stability. Investor nervousness surrounding this decision has only added to the rupee’s downward pressure.

Oil Prices Drop But Offer No Relief

Surprisingly, the 2.73% fall in Brent crude prices to $63.79 per barrel in futures trade has failed to support the rupee. Normally, lower oil prices ease pressure on India’s trade balance, offering some support to the currency.

However, this time the decline is tied to increased OPEC+ output and demand concerns from the trade war, which undermines its usual positive impact on the rupee. The twin shocks of Trump’s tariffs and OPEC’s decision have left commodity and currency markets reeling.

India's Forex Reserves Continue Uptrend

In a bit of relief, the RBI reported a $6.596 billion rise in India’s foreign exchange reserves, taking the total to $665.396 billion for the week ending March 28. This is the fourth consecutive weekly increase in reserves.

The rise has come amid RBI’s interventions in the forex market and a valuation jump, possibly aimed at reducing volatility in the rupee and maintaining macroeconomic stability.

In the previous week, reserves had jumped by $4.529 billion, reflecting a renewed focus on liquidity management in the face of foreign outflows and rupee depreciation.

India's Services Sector Shows Slight Softening

On the economic activity front, India’s services sector showed a marginal dip in momentum. The HSBC India Services Purchasing Managers' Index (PMI) declined from 59.0 in February to 58.5 in March, although it remained well above the long-run average of 54.2.

The easing in business activity is attributed to weaker sales and demand conditions, alongside muted inflationary pressures. While the services sector continues to perform strongly, the slight decline signals a possible moderation in momentum.

Outlook: Pressure Likely to Persist

Given the current scenario, the rupee remains vulnerable. With global trade uncertainties, continued FII withdrawals, and RBI’s policy decision looming, there is little room for a quick recovery.

Analysts warn that unless there’s a de-escalation in the global tariff war or a strong positive surprise from RBI, the rupee may breach further lows in the short term. Additionally, India’s economic data, such as inflation and industrial output in coming weeks, will play a crucial role in determining the currency’s trajectory.

Conclusion: Caution Ahead for Investors and Traders

The current macroeconomic environment demands cautious optimism. While some positives—such as rising forex reserves and a still-resilient services sector—offer hope, the bigger risks from trade tensions, oil price volatility, and foreign fund outflows keep the market on edge.

As the RBI prepares to announce its policy stance, investors, businesses, and policymakers alike are bracing for a bumpy ride. The next few weeks will be critical for India’s financial stability, especially if the global storm does not subside.

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