Rupee hits nearly two-month high of 86.54 on softer US dollar: Is the domestic currency poised for further gains?

INR vs USD Today: The rupee appreciated for the third consecutive session to hit a nearly two-month high mark during the session and registered gains of 25 paise to close at 86.56 against the US dollar on Tuesday, March 18, amid positive domestic equity market sentiments and a weak American currency.

The domestic currency was boosted by likely US dollar inflows and persistent weakness in the greenback, which teetered near a five-month low against major peer currencies. According to forex traders, the US dollar declined on disappointing economic data in the US. The strength of the Asian currencies also supported the rupee, but high crude oil prices capped gains.

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At the interbank foreign exchange, the rupee witnessed high volatility. It opened at 86.71 and hit an intraday high of 86.54, its highest since February 21, and the low of 86.78 against the greenback. The unit ended at 86.56 against the US dollar, registering a gain of 25 paise from its previous closing level. On Monday, the rupee appreciated 24 paise to 86.81 against the US dollar. 

INR vs USD Today: What's boosting the domestic currency?

-This is the third straight session of gain for the rupee, during which it has added 67 paise. According to forex traders, at least three large foreign banks sold dollars, helping lift the rupee. The traders told news agency Reuters that bids by state-run banks, however, kept a lid on further gains.

-The rupee has strengthened for four consecutive sessions and is up 0.8 per cent so far this month, aided by a broadly weaker greenback, an uptick in exporter dollar sales and modest inflows. The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.04 per cent lower at 103.32.

-Domestic equity benchmarks logged their best day in six weeks, closing near one-month highs, after investors bought cheaper stocks on hopes that the market has bottomed out. The BSE Sensex rose 1,131 points to reclaim the 75,000 level, and the NSE Nifty surged 1.45 per cent, tracking a bullish trend in global equities and intense buying in heavyweights such as ICICI Bank, L&T and M&M counters.

-Rising for the second straight session, the 30-share BSE Sensex rose 1.53 per cent to settle at 75,301.26. During the day, it gained 1,215.81 points or 1.63 per cent to 75,385.76. The Nifty rose 325.55 points or 1.45 per cent to 22,834.30. In two days, Sensex has surged 1,472.35 points or 1.99 per cent.

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-The Nifty 50 logged losses for five months in a row starting October - its longest monthly losing streak in 29 years. The index is up 3.2 per cent in March so far, trimming its losses since late September to 13.1 per cent from 16.4 per cent. The broader mid-caps and small-caps rose 2.7 per cent and 2.2 per cent.

-Weak US economic data, coupled with uncertainty about the inflationary impact of US President Donald Trump's trade policies have weighed on the US dollar in recent weeks. The US Federal Reserve's policy decision and interest rate trajectory will be closely watched on Wednesday to gauge its assessment of policy changes under the Trump administration.

INR vs USD Outlook: Is the domestic currency poised for further gains?

According to forex traders, US President Donald Trump's plan to impose broad reciprocal tariffs and sector-specific trade restrictions on April 2 could create further pressure on the rupee. Higher crude oil prices and foreign capital outflows in equities can cap the rupee's further upside.

“Rupee traded higher by ₹0.25 at 86.60, supported by strong capital market inflows as domestic buying outweighed foreign selling pressure. With Nifty showing 325 points gains or 1.45 per cent and major banking sector rally was seen with 1.99 per cent gains, the weak dollar index provided support, keeping the rupee on a firm footing,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

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"With investment sentiment improving in India, rupee strength is likely to sustain unless external factors such as US data or Fed policy shift market dynamics. The rupee range has now shifted higher to 86.25-86.90, reflecting the current momentum and capital flow trends," added Trivedi.

According to Dilip Parmar, Research Analyst, HDFC Securities, "In the near-term, the USD-INR spot rate has immediate support at 86.42 and resistance at 86.90. The technical outlook is becoming increasingly favourable for rupee bulls."

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.