The Indian rupee surrendered early gains and fell against the dollar on Thursday as importers and corporate hedgers continued to demand the dollar even if crude prices were fading. The domestic currency hit 95.34 against the dollar, down 18 paise, on the back of foreign fund outflows and on a lack of confidence.
The rupee opened in positive territory at 94.95 against the dollar as it moved higher as the American dollar fell overnight. The initial optimism was also supported by a less aggressive monetary policy outlook from the senior Federal Reserve official who was less likely to have an aggressive policy driven by the US Fed as a result of falling crude prices which are relatively high in India, which is one reason why the domestic economy of India is mainly imported.
In the day, the rupee was trading in a range of 94.90 to 95.40 before giving up all the gains and closing in negative territory. In addition, the local currency was under pressure as importers increased dollar purchases and corporate hedgers also increased demand for the dollar as they were able to hedge against the fluctuations in the exchange rate.
Forex traders said foreign institutional investor (FII) outflows still weigh on the rupee. While lower crude oil prices and interventions by the RBI to control the rupee can help limit the losses, foreign institutional investor (FII) outflow still kept the currency in the market on the back foot, a global appetite for dollars and solid demand for dollars kept the domestic currency from rallying from the initial slide.
The rupee had already fallen by 60 paise to 95.16 against the dollar on Wednesday, and the dollar, down 5.16 to 95.16 against the dollar. Thursday's weakness continued the recent downward trend that is hurting the Indian currency, and the problems faced by the country's economy at the moment of uncertainty in global economic uncertainty.
Investors are staying cautious as geopolitical tensions including between the US and Iran continue to pose a threat, according to market analysts. Although President Trump has offered some assurance on diplomatic engagement, the situation is of interest to the market analysts and also the oil prices.
Analysts expect that US dollar direction will also continue to be the main driver of the rupee in the near future’s direction. The dollar index, which measures the US dollar’s strength against a basket of six major global currencies, was down 0.38 per cent to 101.00, reflecting some weakness in the greenback following softer-than-expected policy signals from the Federal Reserve in the past few weeks.
In the meantime global crude oil prices were still supportive for the Indian currency. Brent crude oil fell 1.43 per cent to around USD 70.55 per barrel. As India imports most of its crude oil requirements, lower oil prices usually reduce the country's import bill, which in turn improves the country's trade balance and supports the rupee.
Even with this positive trend, experts say the domestic currency is likely to remain under pressure in the near term due to persistent foreign capital outflows. FPI sellers continued their selling spree in Indian stock market in June with ₹49,340 crore or around USD 5.16 billion pulled out of Indian stock market, according to depository data.
The overall trend is even more significant this year. Total FPI outflows from Indian equities have crossed ₹2.7 lakh crore in 2026, much higher than the full withdrawal during calendar year 2025. Analysts attribute the continued selling to the high US bond yields, attractive investment opportunities in developed markets, fears of global economic uncertainty and relatively expensive valuations in Indian equities.
On the domestic stock market, investors were upbeat despite the dollar's decline. The Sensex was up 579.48 points to 77,502.12 and the Nifty 50 up 169.85 points to 24,175.70, driven by buying in heavyweight stocks.
Traders will closely watch US economic data in the near future, such as weekly jobless claims and non-farm payrolls data, for clues on the interest rate path of the Fed. And with oil prices, the foreign fund flows and US dollar going up and down, this will determine the direction of the Indian rupee in the near term. The USD-INR will keep oscillating in the 95.00-95.60 range in the next few days, unless there is a big change in the global market condition, market players say.
