The Indian rupee started the final trading day of May on a weaker note, declining against the US dollar during early morning deals on Friday. The domestic currency opened lower and extended its losses, pressured by a combination of domestic and global factors.
Key Trading Levels and Market Movement
At the interbank foreign exchange market, the rupee opened at 89.85 against the American currency. It quickly lost ground, touching an early low of 89.93 against the US dollar. This represented a fall of 22 paise from its previous close of 89.71. Forex traders noted that the rupee was facing headwinds from a strengthening US dollar in international markets and consistent dollar purchases by importers.
Primary Factors Driving the Rupee's Decline
Several elements converged to put downward pressure on the Indian currency. The primary driver was strong demand for the US dollar from importers, a typical month-end phenomenon as companies meet their payment obligations. Simultaneously, the US dollar index (DXY), which measures the greenback's strength against a basket of six major currencies, was trading higher at 104.87, gaining 0.14%.
Capital movement trends also played a crucial role. Data showed that Foreign Institutional Investors (FIIs) were net sellers in the capital markets on the preceding day, Thursday, May 30. They offloaded shares worth a net Rs 3,050.15 crore, according to exchange data. Such outflows increase the demand for dollars, thereby weighing on the rupee's value.
Broader Market Context and Global Cues
The domestic equity markets provided a mixed backdrop. The benchmark BSE Sensex was trading 125.43 points lower at 72,464.21, while the NSE Nifty declined by 42.75 points to 22,032.35. This cautious sentiment in equities often influences forex market sentiment.
Globally, investors were closely monitoring the release of the US Personal Consumption Expenditures (PCE) price index data, the Federal Reserve's preferred inflation gauge. The anticipation of this data was adding to the overall market volatility. Meanwhile, global oil benchmark Brent crude futures were trading slightly lower, down 0.10% at $81.86 per barrel. While a lower oil price is generally positive for a net importer like India, its supportive effect was overshadowed by the stronger dollar and FII outflows on this trading session.
Analysts pointed out that while the rupee faced immediate pressure, the Reserve Bank of India (RBI) was likely to intervene in the market to prevent any excessive volatility. The central bank's presence is often seen as a stabilizing force for the domestic currency during periods of sharp movement.
