The rupee weakened over the last week, as global and domestic factors turned adverse. The escalation of tensions involving the US, Israel and Iran has sharply shifted the global risk sentiment, triggering a risk-off move across markets.
A key concern is the potential disruption of oil supplies through the Strait of Hormuz, through which nearly 20 per cent of the world’s crude oil passes. Brent crude futures (now at $82/barrel) have risen about 14 per cent so far this month and are up about 33 per cent year-to-date. Given India’s dependence on oil imports, sustained strength in crude prices increases dollar demand and exerts pressure on the rupee.
The dollar has also strengthened amid safe-haven flows, adding to the headwinds for emerging market currencies. The dollar index, currently at 99, is up 2.3 per cent over the last three weeks.
Domestic indicators have not offered support either. Industrial production growth slowed to 4.8 per cent in January 2026 from 7.8 per cent in the previous month. Additionally, net foreign outflows totalled about $810 million in the last two sessions, reflecting heightened investor caution.
Overall, the fundamental backdrop remains unfavourable for the rupee. That said, the RBI may step in to limit excessive volatility if pressures intensify.
Chart
The rupee slipped below the 91 support level on Monday, indicating that the bears are regaining traction. On Monday, it closed at 91.48, and on Tuesday, the market remained closed due to Holi.
The offshore market suggests the rupee is likely to open Wednesday’s session with a considerable gap down, possibly even below 92. Given the risk-off sentiment, we can expect further decline in the local currency. Potential support below 92 is at 92.25 and 92.50.
If the local currency recovers, it will face resistance at 91.50 and 91. Given the prevailing price action and market sentiment, the rupee moving above 91.50 is unlikely.
The dollar index has been capitalising on the current developments. It broke out of a trendline resistance at 98.70. It is heading towards key resistance levels at 99.50 and 100. Even if the dollar index reaches these levels, the rupee will most likely make new record lows.
If the dollar index breaks above 100, it could signal a medium-term trend reversal in the dollar, adding further woes to the local currency. However, as it stands, the resistance at 100 is valid.
Outlook
Overall, the near-term bias remains negative. As long as the rupee trades above 91.50, the downside targets of 92.25–92.50 remain in play. A recovery below 91 is needed to ease the immediate pressure; otherwise, further weakness cannot be ruled out.