CHENNAI: The Indian rupee closed marginally weaker on Tuesday, settling at 85.59 per US dollar, compared to 85.3825 in the previous session. Despite the minor dip, analysts maintained a cautiously optimistic outlook, citing a continued bias toward appreciation driven by underlying global and domestic factors.
Consolidation Phase Before Breakout
According to analysts, the rupee is currently navigating a consolidation phase, and they suggest that it could test stronger levels as the rupee builds momentum.
Dollar Index Recovery Muted
While the dollar index posted a modest rebound following Monday’s losses, it remains weighed down by persistent economic and fiscal concerns in the US. Recent data showed US manufacturing activity contracted in May, adding to concerns over the strength of the world’s largest economy. Additionally, continued debates over the US fiscal deficit and tariff-related uncertainty have kept dollar sentiment on the back foot.
Supportive Macro Environment for Rupee
Analysts at HSBC highlighted two major headwinds for the rupee—elevated oil prices and currency overvaluation—are beginning to abate. Global Brent crude prices have eased significantly since March, reducing pressure on India’s import bill and trade deficit. Simultaneously, a rally in the euro is expected to ease the rupee's real effective exchange rate (REER) overvaluation, improving India’s external competitiveness.
Outlook: Gradual Strengthening Likely
Despite daily fluctuations influenced by regional currencies and risk sentiment, the underlying trajectory for the rupee remains constructive. Analysts widely expect a gradual strengthening trend, potentially taking the rupee toward 85.00 per dollar in the near term, assuming no sharp reversal in oil prices or sudden dollar strength.