The Indian rupee closed higher on Thursday, tracking a drop in the dollar index and oil prices as fears grew that the US's latest tariffs would have an economic impact on itself.
According to Bloomberg data, the domestic currency strengthened by 8 paise to end at 85.44 against the US dollar, up from 85.51 on Wednesday. The currency rose after posting its worst opening since March 10 of this year.
Tracking the fall in the dollar index, the currency rose by 2.39 percent in March, its best month since November 2018. Meanwhile, it fell by 2.42 percent in the current fiscal year.
Overnight, the Trump administration imposed a 26% tariff on Indian imports. Compared to South Korea's 25%, Japan's 24%, and the European Union's 20% levy, this is higher. In addition to calling India's tariffs "very, very tough," Trump declared that he would impose 26% tariffs on all Indian imports, which is half of what India charges on US goods.
But according to analysts from JPMorgan to Bernstein, if these policies persist, they will cause a large amount of inflation in the US, which will reduce demand and increase the likelihood of a recession. The dollar index, which gauges the value of the US dollar in relation to a basket of foreign currencies, dropped 1.68 percent to 102.02, its lowest level since October 2024, after dropping 3.2 percent in March.
While the move does not entirely mirror foreign tariff rates, it has sent ripples through economies, raising concerns about retaliation and increased uncertainty, according to Amit Pabari, managing director at CR Forex Advisors. India has a comparatively solid foundation in spite of these difficulties. As a safeguard against currency fluctuations, the Reserve Bank of India maintains substantial foreign exchange reserves.
According to Pabari, the Dollar Index is anticipated to decline toward 100 in the long run as trade tariffs hinder economic growth and US economic data indicates signs of weakness. This would push the Dollar-Rupee pair to 84.80–85.00. Given all the above factors playing out initially, investors will start flocking to safe havens amidst rising uncertainty in the near term, the rupee will find strong support between 85.50 and 85.60, with a potential rebound to 86.00 and 86.20 levels, according to Pabari.
Despite an initial gap down opening, the rupee received strong support from dollar weakness, resulting in a sharp recovery, according to Jateen Trivedi, VP research analyst at Commodity and Currency, LKP Securities. "Moving forward, the rupee is expected to trade within the 85.00-85.90 range, with global cues and FII flows guiding the trend."
The biggest decline in crude oil prices since October of last year occurred as traders grew more worried about how tariffs would affect the economy and demand for crude. WTI crude dropped 4.32% to 68.61 per barrel, while Brent crude fell 4.06% to $71.91 per barrel.
