Rupee gains 10 paise to 96.65 on RBI intervention; macro headwinds persist

The rupee traded in narrow ranges on Thursday morning, appreciating 10 paise to 96.65 against the US dollar from Wednesday's closing level of 96.75, with dealers attributing the gains to likely RBI support. The domestic currency opened at 96.71 before moving modestly higher, reflecting the central bank's efforts to stabilise the unit amid mounting external pressures.

Fundamental headwinds continue to constrain the rupee despite intraday strength. The dollar index has climbed to multi-month highs, keeping international demand for rupees subdued, while Brent crude prices remain elevated near USD 102 per barrel, adding to India's import costs. Persistent foreign institutional investor outflows have further dampened sentiment, with overseas funds reducing holdings amid the challenging risk environment.

Rupee weakness has intensified by the erosion of the central bank's forex reserves, which have declined by USD 50 billion over a three-week period to levels below the USD 786 billion September peak. This significant drawdown reflects RBI's ongoing efforts to defend the rupee through market intervention, a tactic that market participants say faces limits given the volume of external capital flight.

Forex traders note that strong demand from corporate importers seeking dollars, combined with global safe-haven flows, continue to exert downward pressure on the domestic unit. The RBI's hawkish monetary policy stance has provided some support, though analysts caution that external factors remain the dominant force shaping rupee direction in the near term.