The Indian rupee remained steady at 84.42 against the US dollar in early trade on Thursday, reflecting the impact of fluctuating crude oil prices and subdued sentiment in domestic equity markets. Forex traders noted that while a weaker US dollar lent some support to the local currency, persistent foreign fund outflows continued to exert downward pressure.
Market Performance
At the interbank foreign exchange, the rupee opened marginally higher at 84.41, only to slip back to 84.42—unchanged from its previous closing level. The foreign exchange market had remained closed on Wednesday due to assembly elections in Maharashtra.
This marks the second consecutive trading session where the rupee has exhibited a flat trajectory, underscoring ongoing uncertainties in global and domestic markets.
Global Cues
On the international front, the dollar index, which measures the greenback’s strength against a basket of six major currencies, dipped by 0.11 per cent to 106.49, signalling a slight weakening of the US dollar.
In the commodities market, Brent crude, the global benchmark for oil prices, climbed 0.22 per cent to trade at $72.97 per barrel in futures trading. Volatility in crude oil prices continues to influence emerging-market currencies, including the rupee, as India remains a significant importer of oil.
Domestic Equity Markets
Indian equity markets opened on a weaker note, further dampening sentiment. The BSE Sensex was trading lower by 398.45 points or 0.51 per cent, settling at 77,179.93 points. Similarly, the NSE Nifty dropped 136.10 points or 0.58 per cent, reaching 23,382.40 points.
The decline in equity markets reflected cautious investor sentiment, exacerbated by concerns over foreign fund outflows and global economic uncertainty.
Foreign Fund Outflows
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday, offloading shares worth Rs 3,411.73 crore, according to data released by stock exchanges. This marked yet another session of significant FII outflows, which have weighed heavily on both equity markets and the rupee in recent weeks.
Key Factors at Play
Several factors are contributing to the rupee’s lacklustre performance:
- Crude Oil Volatility: India’s heavy dependence on oil imports makes its currency highly sensitive to crude price fluctuations. The slight rise in Brent crude prices has added to the rupee’s challenges.
- Global Dollar Movement: A softer US dollar provided some relief, as a stronger dollar typically exerts downward pressure on emerging market currencies like the rupee.
- Foreign Fund Outflows: The sustained withdrawal of foreign investments has created additional headwinds for the rupee, offsetting any gains from a weaker dollar.
- Domestic Equity Market Weakness: The slump in Indian stock indices reflects broader concerns about economic growth and corporate earnings, further limiting the rupee’s upside potential.
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Outlook
Analysts predict the rupee will continue to trade in a narrow range, as opposing forces—such as volatile crude oil prices and foreign fund outflows on one side, and a weaker dollar on the other—create a tug-of-war.
“The rupee’s near-term trajectory will hinge on global oil prices and the dollar’s performance. Domestically, any signs of stabilisation in equity markets could provide support,” said a forex trader.
Additionally, the Reserve Bank of India (RBI) is likely to intervene in the forex market to prevent excessive volatility, ensuring stability in the currency.
Implications for the Economy
The rupee’s stability is crucial for controlling inflation, as a weaker currency increases the cost of imports, particularly crude oil. Any further depreciation could strain the Indian economy, which is already grappling with global economic uncertainties and domestic challenges.
The rupee’s flat performance at 84.42 against the US dollar underscores the complex interplay of global and domestic factors influencing the currency markets. With volatile crude prices, ongoing foreign fund outflows, and muted equity markets, the rupee’s immediate outlook remains uncertain. Market participants will keep a close eye on international developments, particularly in crude oil and dollar trends, as well as any policy measures by the RBI.
