Weekly Rupee View: Rupee gets a relief rally, but capital flows remain the key

Looking ahead, the sentiment has turned more constructive, encouraging a risk-on mood, which could lend further support to the rupee
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Rupee appreciated about 1.4 per cent against the dollar on Tuesday, closing at 90.27. The local currency touched a three-week high of 90.05 during the session, lifted by a positive shift in sentiment following India’s trade deal with the US.

The agreement, which significantly lowers the US tariffs on Indian goods, has helped remove a key overhang that had been weighing on Indian financial markets in recent months. Indian equities and the rupee had come under sustained pressure since the tariffs were imposed, triggering heavy foreign investor outflows and placing domestic assets among the weaker performers in emerging markets this year.

Looking ahead, the sentiment has turned more constructive, encouraging a risk-on mood, which could lend further support to the rupee. That said, capital outflows remain the biggest factor that has impacted the Indian currency in recent weeks. According to NSDL data, net foreign portfolio investor outflows so far this year have been $2.7 billion, underscoring the drag from persistent selling pressure.

However, the trade deal breakthrough with the US, coming close on the heels of a long-awaited trade deal with the European Union, has improved the outlook for foreign investor sentiment. If this translates into a revival of portfolio flows into Indian equities and bonds, it will provide a meaningful tailwind for the rupee in the near term.

On the charts 

The rupee rose above a resistance at 91 and is currently hovering around 90.20, another important level from technical perspective. So, we might see a minor dip, possibly to 90.60 from the current level of 90.27.

But then, the local currency can resume the uptrend, potentially taking it to 89.50. While the chart hints this, one should also consider factors like how comfortable the RBI would be if the rupee rises quickly and the finer details in the trade deal. In case something has a negative impact, the domestic currency might slip back to 91.

Another key factor is the dollar, which has been on a recovery since last week. Currently trading at 97.60, the dollar index rebounded from 95.50. As it stands, it is likely to rise further, probably to 98. Such an uptick can weigh on the rupee.

Outlook 

Overall, the relief rally may face a temporary pause around the 90.20 level, with the rupee likely to witness a mild pullback in the coming sessions, possibly towards 90.60.

Published on February 3, 2026