The Indian rupee closed lower by 7 paise at 95.96 against the US dollar on Friday, reversing early gains despite positive domestic market momentum and forex inflows. The currency opened at 95.75 and touched the intraday high of 95.71 in the first half, but came under pressure later to close at the day's low, as reported by The Hindu BusinessLine. This marks a reversal from Thursday's close of 95.89, when the rupee had ended 2 paise higher after declining 150 paise, or nearly 1.5 per cent, in the preceding seven sessions. Positive momentum in domestic equity markets and forex inflows, however, capped losses in the Indian currency, forex traders said. The rupee had managed to break its week-long losing streak on Friday, closing at 95.87 against the U.S. dollar, marking a minor uptick from its previous close of 95.93, as reported by The Economic Times.
Despite India's forex reserves hitting a record $785.71 billion in the week of September 4, 2026, jumping $44.9 billion in a single week - the biggest weekly rise ever, the rupee continues to face pressure and remains stuck around the 95.7-96/dollar range. The record surge was primarily driven by the RBI's special dollar swap scheme that brought in $136.38 billion since its launch in June, as reported by The Times of India. However, most of these reserves sit parked on the RBI's books rather than being traded in the open market, according to Divya Mandaliya, Commodities & Currencies Research Analyst at Anand Rathi Share and Stock Brokers. "So the reserve number swells, but that cash never becomes a real dollar supply that could push the rupee up," she explains. The rupee had earlier rallied strongly to a two-month high when the record inflows were announced, but that strength has failed to hold as fundamental factors continue to pull the currency down.
Brent crude oil prices fell to nearly $104.60 per barrel during Friday's trading session, providing significant relief to the domestic currency, as reported by The Hindu BusinessLine. The rupee's fall was capped as crude prices slid below the 104-per-barrel level, providing much-needed relief to the domestic currency. Positive momentum in domestic equity markets also supported the Indian currency, with Sensex falling 19.63 points, or 0.03%, to settle at 74,294.96, while Nifty gained 75.80 points, or 0.33%, to close at 23,346.40. Foreign Institutional Investors (FIIs) bought equities worth ₹599.54 crore on a net basis on Friday, according to exchange data. The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.24 per cent higher at 100.39, providing some relief from the strong dollar pressure. US bond yields eased after the US Federal Reserve hiked interest rates by 25 basis points, instilling confidence in investors regarding the central bank's resolve to bring inflation under control, according to Business Standard.
Record foreign exchange reserves have provided the RBI with sufficient room to keep the rupee's volatility under check, but fundamental factors are pulling the currency down. India's merchandise trade gap ran wide through 2026: $30.4 billion in June, $32 billion in July, easing to $26.86 billion in August as exports picked up, according to The Times of India. Foreign investors pulled out roughly $29-30 billion from Indian equities, the largest annual outflow on record, though they turned net buyers in July-August, bringing around $5.2 billion back into Indian equities. September has flipped it back to selling: fresh West Asia tensions have pushed Brent crude past $109/barrel, and FIIs pulled out ₹13,138 crore in just the first two weeks of the month. That resumed selling pushed the year-to-date total back up to ₹2.37 lakh crore (~$27 billion) - well above the ₹1.66 lakh crore withdrawn in all of 2025. Divya Mandaliya sees it as a tug of war: On one side, the RBI is building a bigger dollar buffer. On the other side, oil bills, heavy imports, and nervous foreign investors keep pulling dollars out.
The Reserve Bank of India continues to intervene in the currency market to manage volatility, with persistent interventions helping the rupee hold above the 96 per dollar mark over recent sessions. Traders said that the Reserve Bank of India also likely conducted dollar-rupee sell/buy swaps to drain excess rupee liquidity from the banking system, with the central bank's open market debt sale conducted for the same purpose also absorbing cash from the banking system equivalent to nearly 0.2% of total deposits on Thursday, according to The Times of India. Average monthly volatility has fallen to around 20 paise from nearly 40 paise in June, demonstrating the central bank's effective market management. Anuj Choudhary from Mirae Asset Sharekhan said the rupee traded in a range after opening higher on firm domestic markets and a correction in crude oil prices, but it gave up initial gains on a positive dollar. "Traders may take cues from industrial production data from the US. USD-INR spot price is expected to trade in a range of ₹95.65 to ₹96.15," Choudhary said.
