Analysts expect the rupee to appreciate further, with projections suggesting it could reach 86.50 or even 86.40 before the financial year ends. The bullish outlook has prompted many corporates to unwind their long dollar positions.
Current account surplus fuels gainsA key driver of the rupee’s rally is India’s latest current account data, which showed a surplus in February—largely attributed to a trade surplus and stable remittances. This has lifted market sentiment, with forecasts indicating a current account deficit as low as 0.5% of GDP for the next financial year.
Stronger services exports, lower imports
Robust services exports and a decline in imports, aided by falling crude oil prices, have further strengthened the rupee. This structural improvement in the current account has boosted confidence among market participants.Corporates unwind dollar positions
With improving sentiment, many corporates are also reducing their long dollar or short rupee positions, adding to the rupee’s momentum. This increased dollar supply in the market has supported the currency’s appreciation.
Foreign investors continue dollar buying
Despite the rupee’s recent gains, foreign portfolio investors (FPIs) remain active in dollar purchases. However, this demand has been offset by strong dollar selling from PSU banks.
April 2nd reciprocal tariffs a potential risk
While the sentiment remains bullish, a key risk factor is the reciprocal tariffs set to be announced on April 2nd. Any adverse developments could impact market dynamics and weigh on the rupee’s trajectory.
For now, market sentiment has clearly shifted in favour of the rupee, with optimism driving further gains as the financial year-end approaches.
