The local currency fell to 86.9150 to a dollar intraday, before recouping some losses, tracking domestic equity markets. It closed at 86.8150 to a dollar, the lowest level since mid-March, compared with the previous close of 86.6650.
Indian equities snapped a three-day losing streak with the benchmark indices closing higher Tuesday.
“The dollar index has surged in the past two days, leading to a largely hands-off approach from the central bank, as the price action aligned with market forces. This unwinding in major currencies suggests the greenback might be finding a firmer footing after an extended period of weakness,” said Dilip Parmar, research analyst at HDFC Securities.
Dealers said that the central bank, which intervenes to curb excessive volatility in the forex market, had a limited presence on Tuesday. “The RBI likely sold dollars as the rupee touched 86.91 levels. The exchange rate touched 86.91 about three-four times today, and it bounced back every time,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors
If the dollar continues to head north against a basket of currencies, the rupee is headed for a further slide.“A stronger dollar is likely to exert pressure on the Indian Rupee, potentially pushing it beyond the 87 mark,” Parmar said.The dollar index surged on Monday mainly because of slump in the euro as the trade deal with the US and European Union is seen unfavourable to the bloc. During Indian market hours, the dollar index, which measures greenback against a basket of six currencies, extended gains and was trading above 98.
Back home, investors across equity as well as forex markets are expected to remain cautious given the worries over the trade deal, which is unlikely before the US President Donald Trump’s August 1 deadline for higher tariffs.
The attention will also be on the Federal Open Market Committee (FOMC), which is expected to keep interest rates on hold for the fifth time in a row following its meetings on July 29–30. The meeting comes amid Trump’s repeated criticism of Powell over holding the policy rates.
