The Indian rupee slipped 37 paise to close at 85.96 against the US dollar on Thursday, driven by increased demand from importers and foreign banks, as well as a jump in global crude oil prices.

Pressure Mounts Amid Crude Rally and Yield Spread Concerns

Currency markets remained volatile as surging US Treasury yields shook investor confidence globally. The yield gap between Indian and US bonds continues to narrow, reducing the appeal of Indian assets in the eyes of global investors. The rupee’s slide also reflects persistent risk aversion and a notable unwind of short positions following a key technical breach.

At the interbank foreign exchange market, the rupee opened at 85.59 and swung between a high of 85.58 and a low of 86.11 before settling at 85.96. This marks a drop of 37 paise from Wednesday’s close of 85.59. Over the past three sessions, the rupee has weakened by a total of 54 paise.

“The rupee continued to depreciate due to sustained dollar demand and risk-off sentiment. The pullback of carry trades involving the Japanese yen has also weighed on the rupee,” noted Dilip Parmar, Senior Research Analyst at HDFC Securities.

Meanwhile, the US Dollar Index, which tracks the greenback against six major currencies, rose 0.25% to 99.80, further pressuring emerging market currencies. Despite that, Brent crude dipped 1.45% to $63.97 per barrel in futures trading—offering little immediate relief to India’s oil-import-heavy economy.

Outlook: Strengthening Likely Ahead, Says BofA

Despite current headwinds, analysts remain cautiously optimistic. Bank of America (BofA) Research has revised its outlook for the rupee, forecasting a recovery to 84 per US dollar by December 2025—up from a prior estimate of 87. This shift aligns with broader expectations of dollar weakness and improved capital inflows into Indian markets.

“We expect the rupee to benefit from resilient domestic fundamentals and capital inflows, particularly as the Reserve Bank of India continues its pro-growth policy stance,” BofA said in a note released Thursday.

Technical charts also indicate that the spot USD/INR rate has returned to its 100-day simple moving average. If the rupee weakens beyond the 86.11 level, traders may eye resistance in the 86.30–86.45 range. On the flip side, support is seen near the 85.60 mark.

Market Snapshot

As the rupee navigates near-term volatility, market watchers will keep an eye on crude oil movements, US interest rate trends, and India’s capital flow dynamics. All eyes now turn to whether the Reserve Bank of India will step in if depreciation pressure intensifies further.