Indian Rupee Strengthens Against US Dollar, Opens 39 Paise Higher at 86.4425

Rupee Emerges as Best-Performing Asian Currency for Second Consecutive Day

The Indian rupee opened stronger on February 12, appreciating 39 paise against the US dollar to 86.4425, marking a 0.36% gain. This follows a notable 0.75% appreciation on February 11, when the rupee closed at 86.8300, making it the top-performing currency in Asia.

For the second consecutive day, the rupee has emerged as the best-performing Asian currency, buoyed by favorable market dynamics, a likely intervention by the Reserve Bank of India (RBI), and robust capital inflows.

Key Factors Driving the Rupee’s Strength

1. RBI’s Forex Market Intervention

The Reserve Bank of India (RBI) is believed to have intervened in the forex market on February 11, helping stabilize the rupee amid global currency fluctuations. While the exact nature of intervention remains undisclosed, market analysts speculate that the central bank may have:

• Sold US dollars in the spot market to support the rupee.
• Engaged in forex swaps to manage short-term currency volatility.

The RBI’s presence in the foreign exchange market has been a key stabilizing factor, allowing the rupee to outperform regional peers.

2. Strong Capital Inflows into Indian Markets

Foreign institutional investors (FIIs) have increased their exposure to Indian equities and bonds, contributing to the rupee’s strength. Positive sentiment in Indian equity markets, despite global headwinds, has attracted foreign capital inflows, boosting demand for the rupee.

3. Weakening US Dollar Index

The US dollar index (DXY) has shown signs of moderation, driven by:

• Speculation over potential Federal Reserve rate cuts later in 2025.
• Mixed US economic data, which has kept the dollar’s momentum in check.

A softer US dollar has provided tailwinds for emerging market currencies, including the Indian rupee.

4. Crude Oil Prices and Trade Balance Impact

India, being a major importer of crude oil, remains sensitive to global oil price fluctuations. However, crude prices have remained relatively stable, reducing pressure on the rupee’s external trade position.

Lower import costs for crude oil help narrow the trade deficit, contributing to currency appreciation.

Outlook: Will the Rupee Sustain Its Strength?

While the rupee’s recent gains have been encouraging, its long-term trajectory will depend on several global and domestic factors:

1. US Federal Reserve Policy Decisions

• A dovish stance from the US Federal Reserve could lead to further dollar weakness, benefiting the rupee.
• However, any unexpected hawkish signals could reverse the trend, strengthening the US dollar against emerging market currencies.

2. RBI’s Policy Direction

• The RBI’s intervention strategy will be crucial in maintaining rupee stability.
• Any major monetary policy shifts in India could impact forex market movements.

3. Foreign Investment Trends

• Sustained FII inflows into Indian equity and debt markets will support rupee appreciation.
• Market volatility or geopolitical risks could trigger capital outflows, weakening the rupee.

4. Crude Oil Prices and Inflationary Pressures

• A spike in crude oil prices could exert downward pressure on the rupee.
• Domestic inflationary trends will also play a role in shaping forex market sentiment.