Rupee Hits One-Month High as Trade Deal Hopes and Inflows Boost Sentiment

The Indian rupee climbed to its strongest level in a month on Thursday, buoyed by positive foreign inflows and growing optimism surrounding a potential trade agreement between India and the United States. The domestic currency touched a peak of 85.20 per dollar, its highest level since late May, before settling at 85.31, up 38 paise or 0.4% for the day.
The rupee's sharp upward movement came amid reports of dollar sales by foreign banks in the latter half of the session. According to traders, the currency breaching the 85.40 level also triggered stop-losses, further strengthening its position.

Trade Deal Optimism Supports Market Sentiment

The positive sentiment was underpinned by ongoing negotiations between Indian and U.S. trade representatives, with both sides pushing to finalise a tariff-reducing agreement ahead of U.S. President Donald Trump’s July 9 deadline. Hopes for a deal grew after Trump hinted on Wednesday that the two countries were close to reaching an agreement that would “significantly lower tariffs,” promoting fairer trade between them.

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The optimism follows the recent U.S.-Vietnam trade deal that imposed a 20% tariff on exports to the U.S. and a 40% tariff on goods deemed transshipped, while Vietnam agreed to scrap tariffs on U.S. imports. Analysts believe this development raises the possibility of similar breakthrough agreements with other nations, including India and the European Union.

Global Cues and Other Market Drivers

While most Asian currencies ended the day mixed, the rupee outperformed on the back of foreign inflows and reduced bearish positions. The Nifty Metal Index, a key sectoral index, gained traction with increased investor interest, although broader Indian equity markets closed slightly lower.

Traders also pointed to falling crude oil prices as a supporting factor for the rupee. Global crude prices declined by around 1%, with Brent crude trading at $68.41 per barrel, after Iran announced the suspension of cooperation with the UN nuclear watchdog.
Meanwhile, the dollar index—which tracks the greenback against six major currencies—rose marginally by 0.06% to 96.83, though it remains down nearly 11% for the year.

Outlook: All Eyes on Trade Talks and U.S. Jobs Data

Market participants are closely watching the outcome of the India-U.S. trade discussions, as a favourable deal could further strengthen the rupee, potentially pushing it below 85 per dollar. Analysts, however, cautioned that future gains would depend on sustained foreign inflows and any intervention by the Reserve Bank of India to shore up its forex reserves.

Additionally, investors await the crucial U.S. non-farm payrolls (NFP) report due later this week, which will provide further cues on the Federal Reserve's policy direction. Economists expect the U.S. economy to have added 110,000 jobs in June, with the unemployment rate rising slightly to 4.3%.