The Indian rupee is poised for a largely unchanged opening against the US dollar on Friday, as currency market participants adopt a wait-and-watch approach. Traders are keenly assessing the pattern of fresh capital flows at the start of the New Year, following a period dominated by consistent Reserve Bank of India intervention and persistent underlying demand for the American currency.
A Cautious Start to the Year
Indications from the non-deliverable forward markets suggest the rupee will commence trading in a narrow band of 89.94 to 89.96 per US dollar. This follows its previous close at 89.9625 on Thursday. Market volumes are anticipated to remain subdued in the initial sessions of 2026 as participants gauge the speed and composition of dollar inflows and outflows.
In the absence of major immediate triggers, routine transactional flows are expected to dictate the rupee's near-term movements. A currency dealer from a private bank highlighted the prevailing sentiment, stating, "Until there is a shift in participation, the bias remains for the dollar/rupee pair to move higher slowly rather than break lower. Any dips in the pair are likely to attract buying interest."
Looking Ahead: Key Drivers for the Rupee in Q1 2026
The currency's direction in the first quarter of this year is predicted to hinge on two major developments. News regarding a potential trade agreement between the United States and India will be a primary focus for traders. Secondly, the investment behavior of foreign portfolio investors (FPIs) will be critically watched, as both factors have the potential to significantly alter the flow dynamics that pressured the rupee throughout 2025.
It is worth noting that the Indian rupee was the worst-performing Asian currency in 2025, depreciating by approximately 5% over the year. In contrast, the Chinese yuan gained around 5% during the same period, decisively outperforming its Indian counterpart.
Regional Context and Secondary Influences
While specific domestic and bilateral factors will take center stage, movements in the broad dollar index and the performance of other Asian currencies will also play a supporting role in influencing the rupee's path. Most regional currencies began the new trading year on a softer note, with the Chinese yuan being a notable exception to the trend.
As the market settles into the new calendar, traders remain vigilant, balancing the memories of a difficult previous year with cautious optimism about the flow trajectory and external developments that will define the rupee's fortunes in the coming months.
