The Indian rupee weakened past a key psychological threshold on Friday, closing lower against the US dollar. The domestic currency was pressured by disappointing economic indicators and persistent foreign fund withdrawals, despite support from rising equity markets and lower crude oil prices.
Rupee's Trading Session: A Breakdown
At the interbank foreign exchange market, the rupee opened at 89.95 against the American currency. It witnessed volatility throughout the day, touching an intra-day low of 90.25 and a high of 89.92. Finally, the local unit provisionally settled at 90.20 per dollar, marking a decline of 22 paise from its previous close of 89.98. This followed a 10-paise drop recorded on Thursday.
Forex traders attributed the downward movement to consistent foreign institutional investor (FII) outflows and robust dollar demand from importers. "Indian rupee fell on Friday, breaching the 90-mark once again amid disappointing macroeconomic data and a positive US dollar index," said Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan.
Key Factors: Pressure and Support
The rupee faced headwinds from multiple fronts:
- Weak Macro Data: India's manufacturing sector activity grew at its slowest pace in two years in December. The HSBC India Manufacturing Purchasing Managers' Index (PMI) fell to 55 in December from 56.6 in November, though it remained in expansion territory (above 50).
- Strong Dollar: The dollar index, which gauges the greenback's strength against a basket of major currencies, was up 0.07% at 98.38.
- Foreign Fund Outflows: FIIs continued to be net sellers in the domestic equity markets, offloading shares worth Rs 3,268.60 crore on Thursday, as per exchange data.
However, the currency's fall was cushioned by some positive factors:
- Rally in Equities: Domestic stock markets soared. The BSE Sensex jumped 573.41 points to close at 85,762.01, and the NSE Nifty rose 182 points to 26,328.55.
- Softer Oil Prices: Brent crude futures, the global oil benchmark, declined by 0.58% to $60.52 per barrel, easing concerns about India's import bill.
- RBI Intervention: Traders noted that suspected dollar sales by the Reserve Bank of India (RBI) through state-owned banks at lower levels helped prevent a steeper decline. "RBI reportedly sold dollars via state-owned banks, which also prevented the pace of fall," Choudhary added.
Market Outlook and Implications
The rupee's breach of the 90-level highlights the ongoing tension between global dollar strength and domestic economic resilience. While capital outflows and a slowing manufacturing growth momentum pose challenges, robust domestic equity markets and potential central bank intervention provide stability. The movement of global crude oil prices and the trajectory of the US dollar will remain critical monitors for the rupee's near-term direction. Investors are likely to watch for further macroeconomic cues and FII activity to gauge the currency's path ahead.
