The Indian rupee strengthened 46 paise, or 0.44%, to 94.45 against the US dollar on Wednesday, October 21, supported by optimism over a potential India-US trade agreement after US President Donald Trump indicated that a deal could be announced soon.
Ongoing US diplomatic engagement with India has further improved market sentiment while measures taken by the Reserve Bank of India (RBI) to regulate dollar purchases, including dedicated banking arrangements for oil marketing companies, have continued to support the domestic currency.
However, elevated crude oil prices remain a key headwind, limiting the scope for further appreciation. Brent crude trading above $110 a barrel could weigh on the rupee, according to Jateen Trivedi, vice-president and research analyst for commodities and currencies at LKP Securities.
“The rupee could face resistance in the 94.25–94.40 zone,” Trivedi said.
Despite the recent recovery, the rupee is expected to remain under pressure as tighter global financial conditions and persistent foreign portfolio outflows make it harder to bridge the country's external financing gap.
India's current account deficit (CAD) has narrowed to around 0.5% of gross domestic product (GDP), from about 2.5% three years ago. However, the improvement has not been sufficient to offset external pressures on the currency.
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The rupee has depreciated 5% so far this calendar year, with further weakness possible despite sustained RBI intervention, as several external factors remain beyond the central bank's control.
The rupee is the fourth-worst-performing currency in Asia this year, Bloomberg data showed. The Indonesian rupiah has been the weakest, declining 7.3%, while the South Korean won has been the region's best performer, gaining 8.5%. The Chinese yuan has appreciated 4.6% over the same period.
Elevated crude oil prices are another source of pressure. With Brent crude hovering near $105 a barrel, further depreciation of the rupee could follow from an increase in India's oil import bill, economists said.
As one of the world's largest oil importers, India remains vulnerable to higher crude prices, which add to inflationary pressures and weigh on the domestic currency.
Indian equities extend losses; broader markets underperform
Indian equity benchmarks remained under pressure on Wednesday, with the Nifty 50 declining 77.60 points, or 0.34%, to close at 22,811.35, marking its second consecutive session of losses.
The sell-off was more pronounced in the broader market. The Nifty Smallcap 100 dropped 2.37%, while the Nifty Midcap 100 declined 1.58%, significantly underperforming the benchmark indices.
Sectoral performance was mixed, with information technology emerging as the sole major bright spot, gaining 2.88%. Market breadth on the NSE remained negative. Of the 3,698 stocks traded, 2,988 advanced, 608 declined and 102 remained unchanged.
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