The Indian rupee began the new year 2026 on a weak note, depreciating against the US dollar in the first trading session. Persistent selling by foreign investors and a lacklustre performance in the domestic stock market weighed heavily on the local currency's sentiment.
Rupee's Trading Range and Closing Level
According to PTI reports, the rupee slipped by 10 paise to settle at a provisional closing rate of 89.98 against the US dollar on Thursday. This marks a continuation of the downward pressure seen in the previous year. The currency had ended Wednesday's session at 89.88 after a decline of 13 paise.
During the day's trade, the domestic unit opened at 89.94. It moved within a tight band, touching an intraday low of 89.99 and a high of 89.93 before concluding at the day's weak level. Forex traders noted that the pair traded in a narrow range, where the benefit from softer crude oil prices was nullified by a stronger US dollar and ongoing foreign capital withdrawals.
Key Factors Driving the Rupee's Weakness
Several interconnected factors contributed to the rupee's subdued performance. The primary drag came from sustained outflows by Foreign Institutional Investors (FIIs). Exchange data revealed that FIIs were net sellers in the equity market, offloading shares worth a substantial Rs 3,597.38 crore just on Wednesday.
This created a risk-off environment, exacerbated by consistent dollar demand from importers, especially ahead of the recent holiday period. The rupee's weakness in 2025, where it fell nearly 5%, has carried over into the new year, making it one of the poorest-performing currencies in Asia during that period.
On the global front, the dollar index, which measures the greenback against six major rivals, was up 0.09% at 98.32, adding to the pressure on emerging market currencies like the rupee. Meanwhile, Brent crude futures, the global oil benchmark, saw a rise of 0.78% to $60.85 per barrel.
Domestic Equity and Macroeconomic Context
The domestic stock markets provided no support to the currency, ending the first session of 2026 on a flat note. The benchmark Sensex dipped marginally by 32 points to close at 85,188.60, while the Nifty managed a small gain of 16.95 points, ending at 26,146.55.
In macroeconomic news, data released on Thursday showed Gross GST collections for December 2025 rose to over Rs 1.74 lakh crore. This represents a year-on-year growth of 6.1% from the over Rs 1.64 lakh crore collected in December 2024. However, this growth rate indicates a moderation, attributed partly to recent reductions in tax rates affecting revenues from domestic sales.
The combined pressure from external outflows, a firm US dollar, and cautious domestic sentiment suggests the rupee may continue to face headwinds in the near term, with traders closely monitoring FII activity and global dollar movements.
