The Indian rupee weakened by 11 paise to settle at 94.74 against the US dollar on Monday, extending its losing streak amid persistent dollar demand from importers and a surge in global crude oil prices.
Rupee Movement and Market Sentiment
At the interbank foreign exchange market, the rupee opened at 94.63 and touched a low of 94.78 during the session before closing at 94.74, compared to its previous close of 94.63. The domestic currency had depreciated 30 paise in the prior session, reflecting sustained pressure from external factors.
According to forex traders, the rupee's decline was driven by a strong US dollar in global markets and rising crude oil prices, which increased demand for the greenback from oil-importing companies. Additionally, foreign fund outflows added to the downward pressure on the local unit.
Key Factors Behind the Depreciation
The dollar index, which gauges the greenback's strength against a basket of six major currencies, edged higher by 0.1% to 101.8, supported by hawkish comments from US Federal Reserve officials. Meanwhile, Brent crude futures climbed 0.8% to $85.2 per barrel, raising concerns about India's import bill.
Foreign institutional investors (FIIs) remained net sellers in the capital markets, offloading equities worth ₹1,200 crore on Monday, as per exchange data. This capital outflow further weighed on the rupee's valuation.
Impact on Economy and Trade
A weaker rupee makes imports costlier, potentially fueling inflationary pressures in the economy. Sectors reliant on imported raw materials, such as electronics and machinery, may face higher input costs. However, export-oriented sectors like IT and pharmaceuticals could benefit from improved competitiveness.
The Reserve Bank of India (RBI) is likely to intervene periodically to curb excessive volatility, traders noted. The central bank has been selling dollars through state-run banks to prevent a sharp depreciation, but its actions have only limited impact amid global headwinds.
Outlook for the Rupee
Analysts expect the rupee to remain under pressure in the near term, with the 95-mark seen as a key psychological resistance level. The trajectory of crude oil prices and the US Federal Reserve's monetary policy stance will be crucial determinants of the rupee's movement.
Market participants will closely watch the upcoming US GDP data and Fed Chair's speech for further cues on interest rate direction. Any unexpected hawkish signals could strengthen the dollar further, pushing the rupee lower.
