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FileMUMBAI: After struggling near record-low levels until mid-February, when it briefly touched 88 to the dollar, the rupee has staged a sharp recovery. It is now trading nearly flat on the year and is on track to log its best monthly gains since the November 2018 rally, with a rise of just over 2%. This recovery has been boosted by seasonal and portfolio dollar inflows, a weakening greenback, and a drop in bearish positions on the currency.
However, the currency ends the outgoing fiscal 2025 with a 2.5% deep cut. On the last trading of the fiscal 2025 on Friday, the rupee closed 32 paise stronger at 85.47 from the previous closing of 85.79.
The rupee, after bleeding around 5% between the first week of October 2024 and the third week of February this year, has rallied more than 2% this month so far, outperforming all its regional peers and is trading nearly flat on the year. Friday is the last trading day of the current fiscal as next Monday being a holiday.
The rupee has rallied 2.39% this month so far, outperforming its peers, and was last up 0.3% on the last trading of the fiscal year and also the month at 85.47, with traders pointing to dollar sales from foreign and local private banks. It appears that longs (on dollar/rupee) have been exiting after custodial inflows started to hit," a salesperson at a large private sector bank said, referring to an easing of bearish bets on the local currency.
It can be noted that the both the rupee and the equities saw an extended period of outflows that kicked off in early October last, the direction of foreign portfolio flows appears to have reversed over the last few days.
The rally was also due to the fall in the dollar index, which is a measure of the value of the US dollar relative to the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc-- was down 0.07% at 104.26 on Friday.
But the dollar index lost 3.21% in March, the highest since November 2022.The rupee rallied sharply driven by strong foreign institutional inflows, which boosted sentiment and supported rupee buyers, according to Jateen Trivedi, commodity and currency analyst at LKP Securities.
"The range-bound movement of the dollar provided additional relief, keeping pressure on the rupee limited," he added. But the outlook for the rupee is fluid, with potential sources of support emerging, according to Amit Pabari of CR Forex Advisors.
"Better domestic equity performance and sustained foreign fund inflows can provide a stabilising effect," he said, adding in the past six sessions alone, foreign investors have pumped over to $6 billion into equities of which $1.2 billion on Thursday alone.
They foreign funds have pulled out Rs 1.24 trillion so far this year and over Rs 2.5 trillion between October and December 2024.Meanwhile, government bonds have seen inflows worth $3 billion in March, as overseas investors have stepped up purchases ahead of an anticipated cut in central bank policy rates in April.
Given the current global and domestic market dynamics, the rupee-dollar pair is likely to find strong support in the 85.40-85.50 range, Pabari said.
"On the upside, 85.90 will serve as a key resistance level, and a breakout above this could open the path toward 86.40-86.50, and any adverse or aggressive tariff announcement will limit the room for further rupee gains," DBS Bank said in a note on Friday.