Rupee Gains 13 Paise To Open At 86.58 Against The US Dollar

The Indian rupee opened 13 paise higher at 86.58 against the US dollar, supported by a weakening dollar index and favorable global cues. The local currency showed resilience amid fluctuations in global forex markets, reflecting improved investor sentiment.

The rupee began trading at 86.5800 per US dollar and later strengthened to 86.6400, compared to the previous closing rate of 86.7125. Market participants attributed this movement to easing demand for the greenback and improved foreign inflows into Indian assets.

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Dollar Index Decline Supports Rupee

The dollar index, which measures the value of the US currency against six major global peers, declined to 106.193 in early trade from 106.612 in the previous session. A weaker dollar index typically benefits emerging market currencies like the rupee by making them more attractive to investors.

According to Amit Pabari, Managing Director at CR Forex Advisors, the rupee has gained momentum due to a sharp decline in the dollar index. He pointed out that the DXY (Dollar Index) has dropped towards 106.60, weighed down by multiple global factors. Among these, former US President Donald Trump’s flexible stance on tariffs has eased concerns about global trade disruptions, while a weaker US services PMI, which fell to 49.7, has added to the dollar's weakness.

Additionally, market expectations of a less aggressive Federal Reserve stance on interest rate hikes have further contributed to the dollar’s decline. Investors have been closely monitoring economic data and statements from Fed officials, looking for signs of possible rate cuts later in the year. A lower interest rate outlook generally weakens the US dollar, making other currencies more attractive.

RBI’s Liquidity Measures

On February 21, the Reserve Bank of India (RBI) announced a longer-duration dollar/rupee buy-sell swap to infuse durable liquidity into the banking system. This move aims to ease tight liquidity conditions and stabilize market dynamics.

The RBI is scheduled to conduct a three-year buy/sell swap worth $10 billion on February 28, with the first leg of the transaction set for settlement on March 4. This marks the second such auction within a month, following the central bank’s $5.1 billion liquidity infusion through a six-month swap on January 31.

Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, stated that the RBI's three-year buy/sell swap will help mitigate tightening liquidity conditions, thereby bringing down premiums. The central bank’s proactive steps signal its commitment to ensuring sufficient liquidity in the banking system while maintaining overall forex stability.

Market Outlook and Investor Sentiment

Looking ahead, analysts believe the rupee’s trajectory will be influenced by global economic developments, foreign institutional inflows, and the RBI’s policy actions. A sustained decline in the dollar index, coupled with robust domestic economic indicators, could support further appreciation of the rupee in the near term.

However, uncertainties remain, including geopolitical tensions, fluctuations in crude oil prices, and upcoming US economic data releases. Any unexpected hawkish stance from the Federal Reserve or a resurgence in dollar demand could limit gains for the rupee.

Overall, traders and investors will keep a close watch on global cues, RBI interventions, and macroeconomic trends to assess the rupee’s movement in the forex market.