Indian Rupee Opens Lower Amid Market Volatility at 95.39

Indian Rupee Snaps Three-Day Winning Streak as Middle East Tensions Rise

The Indian Rupee opened lower on May 26, breaking a three-day winning streak, as fresh U.S. strikes in the Middle East weighed on optimism over an imminent peace deal with Iran. Traders also expected month-end flows to impact the currency.

The Indian Rupee opened lower by 16 paise at 95.39 per dollar on Tuesday, compared to its previous close of 95.23.

According to Finrex, the dollar has remained under pressure against the Rupee despite weakness across most Asian currencies. This is primarily due to the RBI's active intervention through dollar sales aimed at preventing a sharper fall in the Indian currency. The Rupee had become one of the worst-performing Asian currencies over the past two years, depreciating nearly 15 percent, even as the Chinese yuan strengthened and the dollar index declined sharply from 114 to around 99 levels.

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Finrex noted that aggressive RBI intervention has significantly reduced speculative pressure on the Rupee. Additionally, improving risk appetite in domestic equity markets has supported the Indian currency and helped it remain relatively stable against the dollar.

However, Finrex believes the broader outlook for the Rupee continues to remain weak amid expectations of a wider current account deficit (CAD) this year, driven by elevated crude oil prices, higher imports, and the RBI's outstanding short dollar positions.

In the near term, exporters are expected to continue selling dollars on any rise in the greenback to hedge their receivables, while importers may utilise dips in the dollar to hedge import payments for the next one to two months.

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The dollar nursed losses on Tuesday on rising investor optimism of a deal being struck to reopen the crucial Strait of Hormuz and end the three-month-long Iran war, although fresh U.S. attacks on Iranian targets weighed on sentiment.

Asian currencies traded mixed against the US dollar in the latest session, with the Taiwan Dollar emerging as the strongest performer, followed by the Philippine Peso and China's Renminbi.