The Indian rupee fell 28 paise to 95.64 against the US dollar in early trade on Tuesday, as the American currency strengthened in the global market and risk appetite waned among investors.
Factors Behind the Decline
Forex traders attributed the depreciation to a strong dollar demand from importers and a cautious sentiment ahead of key economic data releases. The dollar index, which gauges the greenback's strength against a basket of six major currencies, rose 0.15% to 104.35, adding pressure on the rupee.
Additionally, sustained foreign fund outflows from domestic equities weighed on the local unit. Foreign institutional investors (FIIs) sold equities worth Rs 1,234 crore on a net basis on Monday, according to exchange data.
Equity Market Impact
The domestic equity markets opened lower, with the BSE Sensex declining 250 points to 57,800 and the NSE Nifty falling 70 points to 17,200. The negative trend in stocks further dampened investor sentiment.
Crude oil prices remained elevated, with Brent crude trading near $85 per barrel, raising concerns about India's import bill and trade deficit. A higher oil price typically puts pressure on the rupee as India is a major importer of crude.
Rupee's Recent Performance
The rupee had settled at 95.36 against the dollar on Monday, after gaining 12 paise earlier in the session. However, the early trade on Tuesday reversed those gains.
Analysts expect the rupee to remain under pressure in the near term due to global headwinds, including the US Federal Reserve's hawkish stance and geopolitical tensions. The central bank's intervention through dollar sales may provide some support, but the overall trend remains weak.
