As long as the dollar index remains below 100, the rupee bulls will have room to make progress.
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The rupee, now at 87.71 against the dollar, is down marginally so far this week. Uncertainties with respect to tariffs and foreign outflows have been dragging the local currency.
But there has been some relief from the sentiment perspective of the market as US President Donald Trump has extended tariff truce with China by another 90 days. Whether and how far this can help the rupee in gaining ground is uncertain though.
That said, the foreign outflows have been weighing on the domestic unit. The net FPI (foreign portfolio investor) outflows over the last week was $0.53 billion. So far in August, there has been net outflow of $1.25 billion.
The inflation data of India and the US for July was released yesterday. The CPI (consumer price index) inflation in India fell to an eight-year low of 1.55 per cent (versus the expected 1.76 per cent). Whereas for the US, the CPI inflation came in at 2.7 per cent against the forecast of 2.8 per cent. However, core CPI, the one closely followed by the Fed, increased at a higher 3.1 per cent against the forecast 3 per cent.
Therefore, broadly, it might work against the rupee in the short-term on expectations that the RBI might incline towards cutting the repo rate but the Fed might opt to hold the policy rate.
While fundamental developments like capital outflows and tariff uncertainties highlight risks for the rupee, the charts of the dollar/rupee pair and the dollar index hint that there might be some relief for the local unit at least in the near term.
Chart
The rupee, which saw considerable weakness over the past few weeks, now seems to have found a support at 87.80. On the back of this, there might be a recovery from the current level of 87.71, probably to 87.20.
It might also stay sideways between 87.20 and 87.80 in the short run as the bears seem to have lost some of the traction. That said, the broader downtrend is intact. Only a decisive move past the barrier at 87 can give bulls some space.
The chart of the dollar index shows that the rupee may not face downward pressure as it faces a crucial barrier ahead at 99.50. Just above this is another key level of 100. Therefore, only a clear breakout of 100 can lead to another leg of uptrend in the dollar index.
Outlook
As long as the dollar index remains below 100, the rupee bulls will have room to make progress. That said, a support at 97 for the dollar index and a resistance at 87 for the rupee means we are likely to see some consolidation between 87 and 87.80 in the coming days.
Published on August 12, 2025
