Rupee weakens 7 paise to open at 95.75 against US dollar

The Indian rupee weakened by 7 paise to open at 95.75 against the US dollar on Wednesday, 27 May, as optimism over a near-term resolution to the Middle East conflict faded, keeping foreign portfolio and importer-related flows tilted against the domestic currency.

Investor sentiment turned cautious after Iran accused the United States of violating a ceasefire by carrying out strikes near the strategically important Strait of Hormuz, a development that could complicate efforts to end the three-month-long conflict.

Although Brent crude oil prices eased slightly during Asian trading hours, they remained close to the $100-per-barrel mark, continuing to pressure oil-importing economies and weighing on regional currencies such as the Indonesian rupiah and Philippine peso.

Concerns over the economic fallout of the Iran conflict have also accelerated foreign capital outflows from India. Overseas investors have reportedly sold more than $24 billion in Indian equities and bonds between March and May, reflecting heightened risk aversion and concerns about India's macroeconomic outlook.

With crude oil prices remaining elevated and exports facing disruptions, economists warn that India could face a widening balance of payments deficit in the financial year ending March 2027, further pressuring the rupee.

The dollar remains stable

According to market experts, the US dollar has remained relatively stable despite growing concerns over the economic impact of the Iran conflict. Recent data showed a modest decline in US consumer confidence in May, as inflation worries resurfaced and concerns about labour market conditions persisted. While a stable dollar may not directly support the rupee, it helps prevent additional pressure that typically arises from a sharp appreciation in the greenback.

Focus shifts to RBI Policy Meeting

Experts also note that investor focus is now shifting to the Reserve Bank of India's Monetary Policy Committee (MPC) meeting scheduled from 3 June to 5 June. Market participants remain divided over whether the central bank will hike rates or maintain the status quo.

The broader debate, however, revolves around whether the RBI will place greater emphasis on currency stability alongside its inflation management objectives. Given the central bank's recent interventions to curb rupee volatility, experts believe interest rates could become an additional policy tool to support the currency and encourage foreign capital inflows.

Rupee Outlook

According to Amit Pabari, Research Team, CR Forex Advisors, technically, the 96.20–96.40 zone is expected to remain a strong resistance area for USDINR. As long as global risk sentiment continues improving and crude oil prices remain under control, the rupee may gradually appreciate toward the 94.50–94.80 zone in the near term.

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