The Indian rupee started the trading session on a weaker note, breaching the 90 mark against the US dollar. The domestic currency depreciated by 6 paise to open at 90.06 against the greenback, compared to its previous close of 90.00.
Factors Behind the Rupee's Early Weakness
Forex traders pointed to a combination of domestic and global factors pressuring the rupee. A primary driver was the strength of the American currency in the overseas markets. Simultaneously, foreign institutional investors (FIIs) were noted as net sellers in the Indian capital markets, which typically creates demand for dollars and weighs on the rupee. On Tuesday, FIIs offloaded shares worth a net Rs 1,622.63 crore, as per provisional exchange data.
However, the rupee's fall was somewhat cushioned by a positive trend in domestic equity benchmarks. The BSE Sensex was trading higher by 156.07 points or 0.21% at 73,485.73, while the NSE Nifty advanced 53.35 points or 0.24% to 22,311.70. This positive sentiment in equities often supports the local currency by attracting foreign inflows.
Global Context and Dollar Index
The US dollar index, which measures the dollar's strength against a basket of six major world currencies, was trading marginally higher by 0.01% at 105.27. This underlying strength in the dollar made other currencies, including the rupee, less attractive in comparison. Market participants were also awaiting key economic data and signals from the US Federal Reserve regarding future interest rate trajectories, which significantly influence global capital flows and currency valuations.
Meanwhile, global oil benchmark Brent crude futures saw a slight decline of 0.11%, trading at $82.70 per barrel. As India is a major importer of crude oil, lower prices can ease the country's import bill and current account deficit, providing indirect support to the rupee.
Expert Outlook and RBI's Role
Analysts suggest that the rupee is likely to trade within a range with a slight negative bias in the near term. The persistent outflow of foreign funds and the broad-based strength of the US dollar are expected to keep the pressure on the domestic unit. Traders will be closely monitoring the Reserve Bank of India's (RBI) actions in the forex market. The central bank is known to intervene periodically to curb excessive volatility in the rupee's exchange rate, which could prevent any sharp, disorderly depreciation.
The rupee's movement against the dollar is a critical indicator for India's economy, affecting everything from import costs and inflation to corporate earnings for companies with foreign debt. Investors and policymakers alike will be watching for stability around key psychological levels like 90 to gauge broader market sentiment.
