Rupee Posts Best Weekly Gain in Over Two Years; Weak Crude Oil Prices, US Dollar Drive Rally

Rupee Sees Its Best Weekly Performance Since 2022

The Indian rupee posted its strongest weekly gain in over two years, buoyed by a decline in global crude oil prices and weakness in the US dollar. The local currency appreciated by more than 50 paise over the week, closing at ₹82.87 against the US dollar on Friday, marking its best five-day performance since March 2022.

Investor sentiment was supported by a combination of favorable macroeconomic cues, including easing oil prices, lower US Treasury yields, and foreign portfolio inflows into Indian equities.

Key Drivers Behind the Rally

1. Slump in Crude Oil Prices

Global crude oil prices continued to soften throughout the week, with Brent crude futures falling below $81 per barrel due to rising US inventories and lingering demand concerns from China. As India imports over 80% of its oil requirements, lower crude prices reduce the country's import bill, narrowing the trade deficit and easing pressure on the rupee.

“The drop in crude has come as a boon for the rupee. A $10 fall in oil prices typically shaves off nearly $15 billion from India’s annual import bill,” said Madhavi Arora, Chief Economist at Emkay Global.

2. Weakening US Dollar

The US dollar index (DXY), which tracks the greenback against six major currencies, slipped below 104.2 this week, reflecting growing speculation that the US Federal Reserve may be done with rate hikes amid signs of moderating inflation.

“The market is re-pricing Fed expectations, and with US yields falling, the dollar has weakened globally. This broad-based softness is working in favor of the rupee,” explained Sugandha Sachdeva, Founder of SS WealthStreet.

FPI Flows and Equity Market Strength

Foreign portfolio investors (FPIs) have been net buyers of Indian equities this week, injecting over ₹4,200 crore into the markets. The Sensex and Nifty 50 both posted modest gains, indicating renewed investor optimism despite global uncertainties.

The rupee’s strength has also been aided by a surge in carry trade activity, where investors borrow in low-yielding currencies to invest in higher-yielding Indian assets, taking advantage of the rupee's stability and India's robust growth outlook.

RBI’s Strategy and Market Intervention

Traders believe the Reserve Bank of India (RBI) may have stepped back from aggressive intervention in the forex market, allowing the rupee to appreciate in line with broader market forces. The RBI had previously maintained a cautious approach, defending the rupee from excessive volatility, especially during periods of dollar strength.

“We are seeing a tactical pause from the RBI in the spot market. Their objective has always been to curb volatility rather than chase a particular level,” said Sajal Gupta, Head of Forex & Commodities at Nuvama Institutional Equities.

Global Market Context

The rupee's rally comes at a time when several emerging market currencies are also gaining ground against the dollar. The Brazilian real, South African rand, and Thai baht all posted weekly gains, signaling a wider risk-on sentiment in global currency markets.

In contrast, the euro remained range-bound amid sluggish Eurozone growth data, while the yen weakened slightly on dovish Bank of Japan commentary.

Investor Outlook: Can the Rally Sustain?

Market participants are cautiously optimistic about the rupee's short-term trajectory but note that upcoming macroeconomic data and global developments could influence the direction.

“The rupee may test levels closer to ₹82.50 if crude stays below $80 and FPIs continue buying. However, risks remain from geopolitical tensions and unexpected Fed guidance,” noted Amit Pabari, Managing Director, CR Forex Advisors.

India’s current account deficit is expected to narrow further in Q2 FY26, providing additional support to the currency. However, traders are keeping a close eye on inflation data, potential RBI rate moves, and the monsoon’s impact on food prices.

The Indian rupee’s robust performance this week underscores the currency’s resilience amid improving domestic fundamentals and a supportive global backdrop. While structural challenges remain, the current momentum offers a breather to importers and policymakers alike.

For investors and businesses with exposure to foreign exchange risks, the recent rally may present a tactical window for currency hedging or repatriation. Still, vigilance is warranted, as the global economic landscape remains fluid.