The Indian opened 19 paise higher at 95.20 against the US dollar on Friday, 3 July, snapping a four-session losing streak as a weaker US dollar boosted emerging market currencies.
The , which tracks the greenback against a basket of six major currencies, slipped 0.2% to 100.77 after falling 0.5% in the previous session. The index is also on track for its biggest weekly decline since early April.
The dollar came under pressure after fresh data showed the US labour market lost momentum in June. Job growth slowed sharply, while payroll figures for the previous two months were revised lower, reinforcing expectations of a cooling economy.
The softer employment data prompted traders to scale back expectations of an imminent Federal Reserve rate hike. Interest rate futures now indicate around a 53% probability of a September rate hike, down from nearly 75% before the jobs report, providing support to the rupee and other Asian currencies.
RBI’s Reserve rebuilding may cap Rupee gains
According to market experts, the RBI’s approach to the rupee appears to be driven by structural factors rather than short-term market sentiment. After months of intervening to defend the currency as it neared the 97-per-dollar mark, the central bank’s foreign exchange reserves have declined from a February peak of $728.49 billion to around $672.6 billion. Coupled with the sizeable forward short position of nearly $106 billion, experts believe the central bank is likely to prioritise rebuilding its reserve buffers. This could limit the rupee’s upside even during periods of supportive global conditions and strong capital inflows.
India-Japan ties strengthen long-term outlook
A positive development for India’s long-term economic outlook came from strengthening ties with Japan. During Japanese Prime Minister Sanae Takaichi’s first visit to India, the two countries signed a series of agreements covering artificial intelligence, economic security, energy resilience, and their first-ever defence co-development project.
Experts note that while these developments may not have an immediate impact on the rupee’s day-to-day movement, they reinforce India’s long-term investment appeal. Bilateral trade between the two nations stood at $27.5 billion in FY26, while Japanese investments in India reached $3.2 billion during the April-December period, underscoring growing strategic and economic cooperation.
Rupee Outlook
According to Amit Pabari, MD, CR Forex Advisors, for the past few weeks, we have maintained that USDINR could move towards the 95.30 to 95.50 zone, and the market is now almost there.
“Yesterday’s price action reinforces that view. Despite a weaker dollar index and lower crude oil prices, the rupee still weakened. If the rupee cannot strengthen on positive global cues, any negative development could easily push USDINR towards the 95.80 to 96.00 zone,” said Pabari.
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