The Indian rupee commenced trading on a positive note on Tuesday, registering a gain against the US dollar. The domestic currency opened stronger, supported by favourable cues from the equity markets and inflows from foreign investors.
Opening Gains and Trading Range
At the interbank foreign exchange market, the rupee opened at 89.92 against the US dollar, marking an appreciation of 6 paise from its previous close. In initial deals, the local unit witnessed a range-bound movement, trading between 89.91 and 89.95 against the American currency.
On the preceding trading day, Monday, the rupee had settled with a marginal loss of 1 paisa at 89.98 against the US dollar. The positive shift in early trade on Tuesday provided a slight respite, reflecting the dynamic nature of the currency market.
Key Factors Driving the Rupee's Movement
Forex traders identified several factors influencing the rupee's performance. A positive trend in domestic equity benchmarks provided fundamental support to the local currency. Additionally, the inflow of foreign funds into Indian markets acted as a catalyst for the rupee's strength.
However, the appreciation was tempered by the strength of the US dollar against other major currencies globally and elevated crude oil prices. The dollar index, which measures the greenback's strength against a basket of six currencies, was trading 0.11% higher at 105.27. This global dollar strength typically exerts pressure on emerging market currencies like the rupee.
In the global commodity market, Brent crude futures, the international oil benchmark, were trading 0.20% higher at $83.60 per barrel. Higher crude oil prices increase India's import bill, leading to dollar demand and potentially weakening the rupee.
Domestic Equity Market Sentiment
The domestic stock market opened on a strong note, aligning with the rupee's positive momentum. The 30-share BSE Sensex climbed 328.48 points, or 0.43%, to 76,351.78 in early trade. Similarly, the NSE Nifty advanced 103.65 points, or 0.45%, to 23,229.70.
Data from exchange filings revealed that Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Monday. They purchased shares worth Rs 1,056.75 crore, according to the data. This buying activity contributes to dollar inflows, supporting the rupee's valuation.
Market participants are also awaiting key domestic macroeconomic data releases, including Wholesale Price Index (WPI) inflation figures for May, scheduled for later in the week. This data will provide further direction to market sentiment and currency movements.
Overall, while the rupee's early gains were encouraging, traders remain cautious, monitoring the interplay between supportive domestic equity flows and the headwinds from a strong US dollar and expensive crude oil. The currency's trajectory for the session will depend on the balance of these competing factors.
