The Indian rupee fell by 8 paise to 95.78 against the US dollar in early trade on Wednesday, as the American currency strengthened in the global markets and risk appetite remained subdued. Forex traders noted that the local unit opened at 95.78, down from its previous close of 95.70, amid sustained foreign fund outflows and a cautious stance ahead of key economic data.
Factors Behind the Decline
The dollar index, which gauges the greenback's strength against a basket of six major currencies, rose 0.1% to 106.50, supported by expectations of prolonged higher interest rates in the United States. Meanwhile, crude oil prices edged higher, with Brent crude trading above $80 per barrel, adding to concerns over India's import bill. Foreign institutional investors (FIIs) remained net sellers in the capital markets, offloading shares worth Rs 1,200 crore on Tuesday, according to exchange data.
Market Sentiment
Risk sentiment took a hit after weak economic data from China raised worries about global growth. The Chinese yuan weakened to a three-month low, putting additional pressure on emerging market currencies. At the interbank foreign exchange, the rupee opened at 95.78 and moved in a narrow range. Analysts expect the currency to remain under pressure in the near term due to a strong dollar and volatile crude prices.
Domestic Equity Markets
On the domestic equity front, the BSE Sensex traded 150 points lower at 79,200, while the NSE Nifty slipped 45 points to 24,150, reflecting a negative bias. The broader market also witnessed selling pressure, with midcap and smallcap indices declining up to 0.5%. Market participants are awaiting the release of US inflation data later this week, which could influence the Federal Reserve's policy path.
Outlook
Currency dealers said the rupee may trade in a range of 95.50 to 96.00 in the coming sessions, with the Reserve Bank of India likely to intervene to prevent sharp volatility. The central bank has been actively managing the currency through dollar sales to smoothen excessive fluctuations. Investors are also monitoring geopolitical developments and the trajectory of global interest rates for further cues.
