The Indian rupee appreciated 23 paise to 96.65 against the US dollar in early trade on Friday, supported by a softer dollar, easing crude oil prices and suspected intervention by the Reserve Bank of India (RBI). However, persistent foreign fund outflows and geopolitical uncertainties continued to weigh on market sentiment.
At the interbank foreign exchange market, the rupee opened at 96.74 and strengthened to 96.65 against the US dollar. The recovery came after the domestic currency declined 13 paise on Thursday to close at 96.88.
Forex market participants said the rupee gained support from a marginal decline in the US dollar index and lower crude oil prices. The dollar index, which measures the greenback against a basket of six major currencies, fell 0.10 per cent to 102.03. Meanwhile, Brent crude futures declined 1.09 per cent to $103.14 per barrel.
Lower crude oil prices generally support the Indian rupee as India depends heavily on imports to meet its energy requirements. A decline in oil prices can help reduce the country's import bill and ease pressure on the domestic currency.
However, continued foreign portfolio investor (FPI) outflows and strong demand for dollars from importers and oil marketing companies remained key challenges for the rupee. Market participants also remained cautious amid geopolitical uncertainties and fluctuations in global financial markets.
Meanwhile, domestic equity markets traded higher in early trade on Friday. The BSE Sensex rose 292 points to 71,876.10, while the NSE Nifty gained 84.60 points to reach 22,310.40.
Foreign institutional investors (FIIs) sold equities worth Rs 12,943.58 crore on a net basis on Thursday, according to exchange data. Continued foreign fund outflows can increase demand for the US dollar and put additional pressure on the Indian currency.
Market participants will closely monitor movements in crude oil prices, the US dollar index, foreign investment flows and geopolitical developments for further cues on the rupee's movement against the dollar.
Despite Friday's recovery, the outlook for the Indian rupee remains linked to global economic conditions, oil prices and capital flows. A sustained decline in crude prices and moderation in dollar demand could provide further support to the domestic currency, while renewed foreign fund outflows and global uncertainties may limit its gains.
