The Indian rupee ended Tuesday’s trading session on a slightly weaker note, settling 4 paise lower at 89.20 per U.S. dollar, as caution in domestic equity markets and persistent foreign institutional investor (FII) outflows continued to weigh on currency sentiment. Despite early gains supported by firm domestic cues and softer crude oil prices, the rupee was unable to sustain momentum and slipped into negative territory by the day's close.

The currency opened at 89.02 at the interbank foreign exchange market, indicating a relatively stronger start compared to the previous session. However, the optimism faded quickly as the local unit weakened to an intra-day low of 89.27 before closing at 89.20, marking a modest loss from Monday’s closing level. This decline comes just days after the rupee faced significant volatility, dropping sharply to touch its lifetime low of 89.66 against the U.S. dollar on Friday (November 21).

Analysts attributed Tuesday’s weakness primarily to the negative sentiment in the domestic equity markets, where benchmark indices extended losses. The Sensex fell 313.70 points to close at 84,587.01, while the Nifty dropped 0.29% to end at 25,884.80. Such broad-based market softness often correlates with pressure on the Indian currency, as investors tend to scale back risk exposure in times of uncertainty. The selling pressure from foreign investors only compounded the currency’s troubles, with FIIs recording net outflows of ₹4,171.75 crore on Monday.

However, the rupee did receive partial support from declining crude oil prices, with Brent crude futures slipping 0.49% to $63.06 per barrel. A softening in crude oil prices is generally positive for the Indian currency, given that India is a major importer of petroleum products. Lower oil prices help reduce the country’s import bill and ease inflationary pressures, thereby assisting in currency stability.

According to Anuj Choudhary, Research Analyst at Commodities Research Mirae Asset Sharekhan, the rupee’s initial gains were driven by the combination of strong domestic markets and softer global crude trends. But the sustainability of these gains was challenged by the strength of the U.S. dollar and ongoing FII outflows. Choudhary further added that the rupee is likely to trade with a "slight negative bias" owing to importer demand for dollars. He also noted that a “weak tone in crude oil prices and supportive global cues may help contain sharp depreciation,” although market volatility could return as speculation rises around possible interest rate cuts by the U.S. Federal Reserve.

The U.S. dollar index, which measures the greenback’s strength against a basket of major currencies, stayed marginally weak at 100.01, down 0.06%. A softer dollar typically supports emerging market currencies, including the rupee. But on this occasion, the relief in the dollar index was insufficient to offset the pressure from domestic factors and capital outflows.

The rupee’s recent swings highlight the delicate balance between global macroeconomic forces and domestic market dynamics. On one hand, the easing of crude oil prices and a marginal weakening of the dollar should theoretically support the currency. On the other hand, India’s equity market fluctuations and persistent outflows from foreign investors continue to undermine investor confidence. This tug-of-war between domestic and global drivers has resulted in range-bound movement for the USD-INR pair, with analysts projecting that the currency will continue to oscillate within the ₹89.00–₹89.50 band in the short term.

The domestic currency’s performance over the past week reflects heightened sensitivity to shifts in global sentiment. The rupee had shown resilience on Monday, gaining a sharp 50 paise after a period of steep losses. This reversal occurred in the wake of its near-record low on Friday, a decline attributed to concerns over geopolitical tensions, rising U.S. yields, and cautious global risk appetite.

As global markets assess evolving economic conditions—including the trajectory of U.S. interest rates, geopolitical tensions, crude supply-demand estimates, and emerging market capital flows—currencies such as the rupee are likely to remain volatile. Recent remarks from U.S. Federal Reserve officials hinting at possible rate adjustments have added another layer of uncertainty. Lower U.S. interest rates could weaken the dollar and improve investor sentiment toward emerging markets. But until such policies materialize, the market is expected to continue experiencing short-term volatility.

From a broader macroeconomic perspective, India’s currency has also been impacted by the mixed performance of key economic indicators. While domestic consumption and industrial activity have shown resilience, inflationary pressures and external sector vulnerabilities persist. These pressures are further amplified when crude oil prices fluctuate or when global financial conditions tighten.

The sharp movements in the rupee also raise questions about the Reserve Bank of India’s (RBI) intervention strategy. Historically, the RBI has stepped in to stabilize the currency during periods of excessive volatility, using its foreign exchange reserves to manage disorderly movements. While recent data suggests that the central bank has been active in managing liquidity and ensuring smooth functioning of the forex market, it is difficult to gauge the precise extent of intervention on a daily basis.

Meanwhile, the performance of India’s stock markets has a direct bearing on the currency’s short-term trajectory. The decline in benchmark indices on Tuesday reflects cautious sentiment among investors, who are watching both domestic and global developments closely. Additionally, given the significant FII presence in the Indian markets, sustained foreign selling tends to amplify pressure on the rupee. In this regard, the sizeable outflows recorded in recent days have contributed to the weakening trend.

Another factor influencing the rupee is the global economic outlook, particularly the developments in the United States and China. Economic slowdowns or policy uncertainties in major economies tend to ripple through global markets, affecting trade, investment, and currency flows. Recent market commentary indicates that investors are increasingly concerned about global growth prospects, which may continue to influence emerging market currencies in the coming months.

At the same time, India’s domestic policy framework, including fiscal and monetary measures, plays a crucial role in shaping investor sentiment. The government's steps to manage inflation, promote investment, and maintain fiscal discipline are closely watched by global investors. Any deviation in these parameters can impact capital flows and currency stability

Join our Telegram Channel for Latest News and Regular Updates.

Start your Mutual Fund Journey  by Opening Free Account in Asset Plus.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.