The Indian rupee closed marginally lower on Tuesday, but analysts said the underlying bias continues to be for a gradual appreciation to 85 per dollar amid persistent dollar weakness and easing headwinds.
The local currency, which settled at 85.59 against 85.3825 in the previous session, had to contend with mixed cues from Asian peers and a modest recovery in the dollar index, which clawed back part of Monday's losses.
"The rupee is currently in a consolidation phase before the eventual breakout," said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
"With the dollar broadly struggling, we think a move towards 85.00 could materialize sooner rather than later."
While the dollar index recovered modestly, it remains under pressure on U.S. policy and economy concerns. Data released on Monday showed U.S. manufacturing activity contracted in May.
Meanwhile, worries over the U.S. fiscal deficit and the tariffs back-and-forth continue to linger.
Analysts at HSBC said in a recent note that two key headwinds for the rupee - elevated oil prices and real effective exchange rate overvaluation - have begun to ease.
Brent crude has declined meaningfully since March, which will help contain India's trade deficit, while a rally in the euro is expected to reduce the rupee's overvaluation, the analysts said.
HSBC projects USD/INR to reach 85 by the end of the April-to-June quarter.
Market participants await the Reserve Bank of India's policy decision and the U.S. non-farm payrolls report on Friday.
The local currency, which settled at 85.59 against 85.3825 in the previous session, had to contend with mixed cues from Asian peers and a modest recovery in the dollar index, which clawed back part of Monday's losses.
"The rupee is currently in a consolidation phase before the eventual breakout," said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
"With the dollar broadly struggling, we think a move towards 85.00 could materialize sooner rather than later."
While the dollar index recovered modestly, it remains under pressure on U.S. policy and economy concerns. Data released on Monday showed U.S. manufacturing activity contracted in May.
Meanwhile, worries over the U.S. fiscal deficit and the tariffs back-and-forth continue to linger.
Analysts at HSBC said in a recent note that two key headwinds for the rupee - elevated oil prices and real effective exchange rate overvaluation - have begun to ease.
Brent crude has declined meaningfully since March, which will help contain India's trade deficit, while a rally in the euro is expected to reduce the rupee's overvaluation, the analysts said.
HSBC projects USD/INR to reach 85 by the end of the April-to-June quarter.
Market participants await the Reserve Bank of India's policy decision and the U.S. non-farm payrolls report on Friday.
