Overview

The Indian rupee began Tuesday’s trading session with a modest recovery, supported by foreign exchange market intervention signals and improving domestic sentiment. After touching a record low of ₹88.33 per U.S. dollar on Monday, the rupee showed early signs of stabilization. Offshore one-month non-deliverable forwards (NDFs) were quoted in the range of ₹88.10–₹88.14, suggesting a more favorable opening for the local currency.

Despite the bounce, the broader market tone remains cautious. Currency strategists and traders remain wary of downside risks stemming from renewed U.S. tariff threats, persistent foreign capital outflows, and hedging activity from large importers.

RBI’s Quiet Intervention and Market Rebalancing

The Reserve Bank of India (RBI) has been subtly active in supporting the rupee through open market operations, including likely dollar sales in the spot and forward markets. While the central bank has not formally confirmed intervention, traders widely attribute Monday’s pullback from all-time lows to central bank activity.

The RBI’s consistent presence during times of currency volatility has helped temper panic-driven moves, preserving a degree of market stability. Analysts believe that continued intervention—or even signaling of future action—can act as a psychological anchor for rupee traders.

Equity Market Support and Offshore Position Cleanup

Tuesday’s partial recovery also coincided with a rebound in domestic equity markets. The Nifty 50 and Sensex opened higher, improving overall investor sentiment. This uptick in equities has helped reduce short-term pressure on the rupee, as foreign investors adjusted exposure.

In offshore markets, particularly in Singapore and Dubai, traders began unwinding bearish rupee positions built ahead of Monday’s low. This position cleanup in the non-deliverable forward market contributed to the rupee’s stabilization today.

Foreign Fund Outflows Raise Medium-Term Concerns

Despite today’s marginal gains, the rupee remains under pressure from sustained capital outflows. According to recent depository data, foreign investors pulled out approximately $1.02 billion from Indian equities and ₹217.3 billion from domestic bonds on August 31 alone. These figures reflect growing investor caution amid global uncertainty and a reassessment of emerging market risks.

India’s widening current account deficit—driven by a persistent trade imbalance—adds to structural concerns. The April–June quarter saw India return to a current account deficit after briefly reporting a surplus in late 2024. As import costs rise and export growth slows, the rupee’s ability to maintain stability could face further tests.

External Pressures: U.S. Tariffs and Dollar Trends

Currency traders are also monitoring renewed tensions in U.S.–India trade negotiations. Speculation around fresh U.S. tariffs on select Indian exports has introduced an added layer of uncertainty. Such developments could trigger further hedging from Indian exporters and importers, potentially weakening the rupee further if not countered by RBI action.

On the global front, expectations of U.S. interest rate cuts—widely anticipated later this month—have led to recent U.S. dollar weakness. If this trend continues, it could provide some relief for the rupee by making the dollar less attractive relative to emerging market currencies.

Outlook: Rupee Caught Between Relief and Risk

Market analysts suggest the rupee may trade in a narrow band in the short term, but further direction will depend on several evolving factors:

• Monetary policy signals from the RBI and the U.S. Federal Reserve

• Capital flow patterns in and out of Indian equity and bond markets

• Progress in U.S.–India trade talks and tariff negotiations

• Upcoming U.S. data, including August nonfarm payrolls, which could influence dollar direction

If the RBI continues to provide back-end support and the dollar weakens due to Fed easing, the rupee could gain some breathing room. However, investor sentiment remains fragile, and any negative surprise could send the currency back toward record lows.

Conclusion

The Indian rupee’s modest recovery on September 2, 2025, offers a temporary reprieve in a challenging forex landscape. While RBI’s market operations and improving equities offer short-term relief, concerns over tariffs, capital outflows, and global headwinds persist. Traders, corporates, and investors are watching closely, aware that volatility may return at any moment.