India’s currency markets opened Tuesday (June 10) with a positive surprise as the rupee gained 8 paise to trade at ₹85.58 against the US dollar in early trade. The gain in the rupee was attributed to a strong start in the domestic equity markets and continued foreign capital inflows, boosting investor sentiment.

Early Gains Reflect Market Confidence

At the interbank foreign exchange, the rupee opened slightly weaker at 85.62 but quickly rebounded to 85.58, marking an 8-paise gain over the previous close of 85.66. This appreciation is notable given the global uncertainties and reflects positive risk sentiment and foreign investor confidence in India’s macroeconomic stability.

On Monday (June 9), the rupee had already appreciated marginally by 2 paise, signaling an emerging trend driven by inflows from FIIs and strong stock market performance.

Support from Foreign Institutional Investors (FIIs)

One of the biggest contributors to the rupee’s gains is the net equity buying by Foreign Institutional Investors, who pumped in ₹1,992.87 crore into Indian markets on Monday. This consistent flow of foreign capital into equities has supported the rupee, despite external headwinds like the rising dollar index and global crude oil prices.

Robust foreign capital inflows not only strengthen the rupee but also reflect confidence in India’s economic prospects, even amid global tensions such as the US-China trade talks.

Upside Capped by Global Crude and Dollar Strength

However, the rising global crude oil prices and a firm US dollar limited further appreciation of the local currency. Brent crude, the global benchmark, rose 0.33% to $67.26 per barrel in futures trading. A surge in oil prices is typically negative for the rupee, as India imports the majority of its oil needs, widening the trade deficit and adding pressure on the currency.

Simultaneously, the dollar index, which measures the greenback’s strength against six major global currencies, increased by 0.2% to 99.13, further pressuring emerging market currencies including the rupee.

Range-bound Outlook Amid Global Uncertainty

According to Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, the rupee is likely to trade within the range of 85.45 to 85.95 through the day. He noted that markets are closely watching the progress of US-China trade talks, which has created a range-bound trading pattern for the rupee within 85 to 86.

Bhansali suggested, “Importers may consider buying around 85.45, while exporters could look to sell above 85.80 during intra-day trading.”

US-China Trade Talks: A Key Driver for Global Sentiment

The broader market remains cautious as trade negotiations between the US and China continue. Both countries are attempting to resolve long-standing trade disputes, but with global economies interlinked, any escalation or resolution can have ripple effects across emerging markets, including India.

According to market observers, investors are reluctant to take aggressive positions as they await concrete outcomes from the bilateral discussions. This has led to lower volatility and a tighter trading range for currencies like the rupee.

What Lies Ahead for the Rupee?

Going forward, the rupee's movement will depend on the following key factors:

• Foreign fund flows: Continued inflows could push the rupee stronger, especially with a bullish equity market backdrop.

• Crude oil prices: A sustained rise above $70 could add pressure, leading to potential depreciation.

• Dollar index movement: A strengthening dollar generally weakens emerging market currencies.

• Geopolitical developments: Especially trade negotiations between the US and China, which affect global investor sentiment.

Trading Strategy for Importers and Exporters

For market participants, especially those involved in import-export businesses, the current range-bound rupee movement offers opportunities for hedging. With a daily trading range expected between 85.45 and 85.95, businesses can plan their forex exposures more efficiently.

Bhansali’s insights indicate a prudent strategy for the day: importers should target buys near 85.45, while exporters could offload their dollars above 85.80, making the most of intra-day volatility.

Conclusion: A Resilient but Cautious Market

The rupee’s appreciation today reflects resilience amid external pressures, supported by equity market optimism and foreign investments. However, it is still vulnerable to global headwinds such as rising oil prices and US dollar strength. Market participants are advised to monitor key indicators closely and trade within the defined range, as the currency continues to navigate global uncertainty with cautious optimism.

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