Smita Mishra 
The Indian rupee’s direction this week will be shaped by the dollar’s reaction to its recent correction and whether worries over U.S. tariffs continue to subside. The rupee ended at 86.8225 per U.S. dollar on Friday, having rallied 0.7% in the week, its best performance in more than one-and-a-half years.
This rally was largely driven by the Reserve Bank of India’s (RBI) heavy intervention, as well as the lack of U.S. tariffs implemented last week. Kunal Kurani, associate vice president at Mecklai Financial, noted that after the rally, the rupee is expected to track the dollar’s move more closely. The dollar index declined about 1% last week, and is down about 3% from its year-to-date high.
However, any developments related to tariffs could impact the rupee’s recovery. Traders expect the rupee to trade in the range of 86.50-87.20 this week. The RBI’s cautious commentary and lack of fresh liquidity infusion measures last week led to a narrow trading range for bond yields, which ended at 6.7071% on Friday.
The Indian rupee has been impacted by various factors, including the US-China trade war, RBI’s interest rate cuts, and foreign outflows. The rupee had touched an all-time low of 87.49 earlier this month due to these factors.
In terms of the impact of US tariffs, President Donald Trump has pressed ahead with a 10% tariff on US companies importing goods from China. China has retaliated by announcing its own tariffs on some US products and an antitrust probe into Google.
The RBI cut interest rates by 25 basis points the week before but did not unveil fresh liquidity injection measures. Instead, its commentary was also on the cautious side, according to market participants. Experts expect the RBI to cut interest rates by 25 basis points in its April meeting, followed by another cut later in the fiscal year. The minutes of the RBI’s policy meeting, due on Friday, will provide more cues on the central bank’s future plans.
Over the past month, the RBI has infused 2.68 trillion rupees into the banking system, providing much-needed liquidity to the market. India’s HSBC Flash manufacturing, services, and composite PMI is due on February 21, and the minutes of Reserve Bank of India’s February monetary policy meeting are also due on the same day.
Additionally, the US will release its January housing starts data on February 19, and the initial weekly jobless claims data on February 20. The US February Philly Fed Business Index is also due on February 20. Overall, the Indian rupee’s direction this week will depend on various factors, including the dollar’s movement, US tariffs, and RBI’s liquidity infusion measures
