Rupee Faces Key Resistance as Weaker Dollar Boosts Asia’s Currencies

The Indian rupee opened slightly stronger on Monday, helped by a broadly weaker U.S. dollar and a rally in Asian currencies. But don’t expect a breakout just yet, traders say the rupee still has to clear some tough resistance levels before it can gain serious ground.

The U.S. dollar index is hovering near 97.1, its weakest since 2022. Why? Slowing consumer spending, cooling inflation, and fresh talk that the Fed might start cutting rates as early as September. Top Fed officials are still cautious, but markets are clearly leaning toward the idea of earlier monetary easing.

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Rupee Moves, But Cautiously

Back home, the USD/INR pair was trading around 85.52 at midday, pretty close to Friday’s close of 85.4750. Traders are watching the 85.30–85.40 zone like hawks. This is where state-owned banks usually step in with dollar buys, limiting how much higher the rupee can go.

The rupee’s 200-day moving average is also sitting around 85.35, adding another layer of resistance. A strategist from a foreign bank summed it up: “We expect decent dollar selling if the price rises, with support kicking in near 85.30 and again at 85.00 if momentum builds.”

Asia’s Currency Rally Lifts the Mood

Across the region, currencies are doing well. The Chinese yuan hit its highest level since November, rising 0.1%. The Korean won and Taiwanese dollar also notched up gains. Why the optimism? Some thawing in U.S.-China trade tensions, like a new deal on rare earth approvals, and fewer geopolitical worries are giving Asian markets a lift.

Oil prices staying low (Brent under $70–75) also helps. Cheaper energy cuts India’s import bill and inflation risk, which supports the rupee.

Technical Levels in the Spotlight

Here’s the challenge: two important resistance points stand in the rupee’s way. First, the 200-day moving average is around 85.35. Second, the short-term support trend line is at 85.30. If the U.S.D/INR drops and holds below 85.30, it could slide toward 85.00. But if it bounces back, we’re likely to stay stuck in the familiar 85.50–86.00 range.

Foreign portfolio investors (FPIs) continue to shape the story. They sold nearly ₹5,000 crore in Indian government bonds this month. That’s less than previous months, but it still adds pressure on the rupee.

If the outflows continue, the Reserve Bank of India might need to step in to manage liquidity and keep the currency steady. India’s 10-year bond yield is sitting near 6.31%, and most analysts expect it to stay there unless global risks suddenly spike.

Long-Term Hurdles Remain

Even with the current momentum, the rupee faces deeper issues. India’s net international investment position is still in the red by about $350 billion. That means the rupee is more vulnerable to swings, especially during periods of dollar strength.

Unlike Taiwan or South Korea, which have stronger balance sheets, India doesn’t benefit as much when the dollar weakens.

A recent Reuters poll showed that while the rupee might appreciate a little, it’s likely to lag behind other emerging-market currencies. Most strategists are calling for only a mild move to around 85.25 by August.

On top of that, traders are pulling back from long rupee bets due to geopolitical risks, especially in the Middle East, where tensions between Israel and Iran could push crude oil prices higher and stir up inflation again.

What to Watch Next

Over the next few days, these factors could move the needle:

• U.S. jobs data (out July 3) and any updates from the Fed could either cement or crush hopes for a September rate cut.
• Oil prices and geopolitics: Middle East tensions could raise oil prices, while low oil would support the rupee.
• Foreign investment flows: Continued inflows would help offset structural pressures.
• RBI policy signals: Any shift in liquidity or forex reserve actions could influence short-term sentiment.

The Bottom Line for Traders

Right now, we’re in classic “sell-on-rallies” territory. The rupee is stuck just below key resistance. A clear drop below 85.30 might open the door to more downside. But if it bounces back, we’re likely going sideways for a while, stuck between 85.50 and 86.00.

As one Mumbai-based dealer put it, “It’s a textbook setup; strong dollar bids around 85.35 from state-run banks are capping the move.”

So while Asia’s FX rally and falling oil prices support the rupee, don’t expect a breakout until some of these key technical and structural headwinds are cleared. Stay tuned, data and global risk shifts could change the story fast.