USD/INR: Rupee Hits Two-Week Low Amid FII Sell-Off and Trade War Concerns

The Indian rupee weakened further on Friday, declining to 87.3850 against the U.S. dollar at 10:58 a.m. IST, down from 87.20 in the previous session. The Reserve Bank of India (RBI) intervened in the forex market on Thursday when the currency touched 87.40, attempting to stabilise its value.

The rupee, along with other Asian currencies, struggled due to heightened concerns over a global trade war. U.S. President Donald Trump announced that tariffs on Canada and Mexico would take effect next week, along with additional levies on China. In response, Canada vowed swift retaliation.

U.S. equities saw a sharp decline on Thursday, while the dollar index surged, further pressuring emerging market currencies. Meanwhile, the dollar-rupee forward premiums remained range-bound as investors awaited the results of the RBI’s $10 billion forex swap.

Rupee Falls Over 5% in One Year

The Indian rupee has depreciated by more than 5% over the past year. Nearly a year ago, the dollar traded around 82.87 against the rupee, according to Investing.com data. On February 25, 2025, the exchange rate stood at ₹87.089 per dollar, reflecting a significant decline.

This depreciation has made overseas expenses costlier for Indian students and businesses. The total cost to study in the U.S. for one year, including tuition and living expenses, can range between $80,000 and $100,000. With the rupee’s decline, the cost has increased to ₹69.67 lakh from ₹66 lakh, adding an extra ₹3.67 lakh per year. For a two-year program, the additional cost rises to ₹7.34 lakh.

FPIs Continue to Exit Indian Markets

Overseas investors have been aggressively selling Indian equities, with more than $4.2 billion worth of shares offloaded this month alone. Since the end of September 2024, total foreign investment outflows have reached a staggering $25 billion.

The benchmark stock index is on track to close in the red for the fifth consecutive month, marking its longest losing streak since 1996. In October 2024, foreign investors withdrew nearly $11 billion from Indian markets, followed by further outflows of $2.7 billion in November and $8.4 billion in January 2025. However, December 2024 saw a brief respite as foreign investors turned net buyers, purchasing stocks worth $1.3 billion.

Crude Oil Prices Remain Volatile Amid Tariff Concerns

Crude oil prices saw fluctuations amid renewed trade tensions and economic concerns. West Texas Intermediate (WTI) crude hovered near $70 per barrel after a 2% surge on Thursday, while Brent crude closed just above $74 per barrel.

President Trump reaffirmed plans to impose tariffs on imports from Canada and Mexico starting March 4, including a potential 10% levy on Canadian energy products. This could drive up crude prices, but broader tariffs on goods risk slowing economic growth and reducing oil demand.

Despite the recent uptick, crude remains on track for a monthly loss due to weak economic data and global growth concerns. Additionally, Trump’s increased tariffs on China, the world’s largest crude importer, may further dampen demand. On the supply side, potential pipeline exports from Iraq’s semi-autonomous Kurdistan region could resume, while OPEC+ is widely expected to delay any production increase.

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