The Indian Rupee reversed course on Monday after hitting lifetime lows, strengthening by 49 paise in early trade to ₹89.17 per USD.

Earlier in the session, the rupee had opened around ₹89.46 before rallying.

This recovery comes after the rupee had plunged 98 paise the previous session to close at ₹89.66, marking its steepest one-day fall in over three years.

Drivers of rebound

Several key factors contributed to the rupee’s rebound:

• Intervention by Reserve Bank of India (RBI): Forex traders suggested that the RBI stepped in both in spot and non-deliverable forwards markets to support the rupee ahead of the domestic session.

• Dip in global oil prices: Lower crude helped ease pressure on India’s forex demand side, aiding currency support.

• Positive domestic equity market response: Early trade saw gains in major indices such as the BSE Sensex and the Nifty 50, which bolstered market sentiment.

Near-term risks and outlook

• Market participants are closely watching prospects of a formal India–US trade deal. Optimism around a deal by December-end is cited by analysts as a key factor that may stabilize the currency.

• However, caution remains. Traders warn that in the absence of such a trade deal, the rupee could face renewed pressure, potentially breaching the ₹90 per USD mark.

• Over the year so far, the rupee has declined ~4.5% against the dollar and remains one of the weaker Asian currencies, exposing it to external volatility and domestic inflation risks due to import dependence.

Implications

• A weakening rupee could drive up costs of imports (especially fuel and other essentials), potentially feeding into inflation.

• On the flip side, rupee strength supported by central bank intervention could buttress capital markets and investor confidence in the near term.

• The evolving trade negotiations with the US remain a pivotal swing factor for future currency stability.