appreciated 1.2 per cent against the dollar over the past week to close at 95.28 on Tuesday. However, the broader fundamental backdrop remains challenging, with persistent foreign outflows, rising crude oil prices and elevated US Treasury yields posing risks to the local currency.
Foreign portfolio selling continued. According to NSDL data, net FPI outflows stood at about $2.4 billion over the past week, taking the cumulative outflows in October to $4.7 billion. So far in 2026, net outflows have risen to around $26.8 billion.
have also emerged as a headwind. After moderating in the second half of September, Brent crude has been rising since the beginning of October.
Currently trading around $105/barrel, it has gained about 7 per cent so far this month. Elevated oil prices continue to weigh on the rupee, given India’s dependence on crude imports.
Meanwhile, US Treasury yields have moderated in the recent sessions. The 10-year yield has declined to 5.18 per cent from a high of 5.37 per cent made on October 7. Nevertheless, yields remain elevated, supporting the dollar and keeping pressure on emerging market currencies, including the rupee.
On the domestic front, retail inflation accelerated to 5.54 per cent in September from 4.83 per cent in August, exceeding market expectations of 5.4 per cent.
This is the highest reading since October 2024 and brings inflation closer to the RBI’s upper tolerance limit of 6 per cent. Sustained inflationary pressure could strengthen expectations of further monetary tightening, potentially providing some support to the rupee.
Additionally, direct dollar supplies to state-owned oil companies could ease demand for the greenback in the foreign exchange market, offering further relief to the local currency.
Overall, while the rupee has recovered over the past week, elevated crude oil prices, persistent foreign outflows and high US Treasury yields remain significant headwinds. However, potential RBI measures and expectations of further monetary tightening could provide some support.
Charting the course
The rupee has seen a good recovery so far this week. The rebound happened on the back of the support at 96.80. From the current level, the nearest notable resistance is the 94.90-95 price band. Hence, there is a good chance for the local currency to extend the recovery.
This can be supported by a decline in the dollar index (currently trading at 102.25) as the resistance ahead at 102.50 can trigger a corrective decline. While the broader trend is bullish for the index, given that it saw a sharp rally in the recent weeks, a minor fall, possibly to 101.60, is likely to happen.
However, if the dollar index regains strength and breaks out of 102.50, it can extend the rise to 103. Resistance above 103 can be spotted at 103.50. If this rally occurs, rupee can face renewed downward pressure.
A breakout of 102.50 in the dollar index can probably drag the Indian unit to 96.50 or even to 97.
Currency outlook
Overall, with the dollar index facing resistance and the rupee’s price action showing a positive bias, the local currency could extend its recovery towards 95. However, we expect the broader downtrend to resume thereafter, potentially dragging the rupee towards 96 again in the near term.