The Indian rupee remained under pressure on Tuesday, hovering near its all-time low of 84.07 against the US dollar, as a decline in regional currencies added to the currency’s woes. Despite mild dollar sales from state-run banks providing some support, the rupee has shown limited resilience this month, reflecting broader concerns over economic conditions.
As of 11:20 a.m. IST, the rupee was trading at 84.0725, nearly unchanged from its close of 84.06 on Monday. Earlier, the currency had dipped to a record low of 84.0750, marking a troubling descent below the 84 level for the first time last week. This sustained weakness is symptomatic of ongoing challenges faced by the Indian economy amid a strengthening US dollar.
Regional currency trends
The Indian rupee’s plight is part of a larger trend affecting several regional currencies, which have all seen declines ranging from 0.8% to 3% this month. The dollar index, which measures the performance of the US dollar against a basket of major currencies, stood at 103.3 on Tuesday, marking its strongest level in over two months. Other Asian currencies also reflected this trend, with declines between 0.1% and 0.8% as the dollar strengthened in global markets.
Traders have noted increased demand for US dollars, particularly from foreign banks bidding for dollars on behalf of custodial clients. This uptick in dollar demand has exacerbated the rupee’s struggles, creating a challenging environment for the Indian currency amid global fluctuations.
Impact of foreign outflows
One of the significant factors contributing to the rupee’s current situation is the sustained outflows from local equities. Foreign investors have pulled out approximately $8 billion from Indian markets this month, a trend that has negatively impacted the rupee’s valuation. In parallel, benchmark equity indices such as the BSE Sensex and Nifty 50 experienced declines of about 0.2% each on Tuesday, diverging from gains seen in most other Asian markets.
This volatility highlights the interconnectedness of currency values and stock market performance, as investor sentiment heavily influences both sectors. The outflow of foreign investment not only weighs down the equity markets but also leads to diminished demand for the rupee, further contributing to its depreciation.
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Short-term outlook
Looking ahead, analysts suggest that the rupee may continue to trade within a narrow range between 83.90 and 84.10 in the near term. Amit Pabari, managing director at FX advisory firm CR Forex, indicated that with appropriate intervention from the Reserve Bank of India (RBI) and favorable global conditions, the rupee could potentially strengthen to around 83.80. This cautious optimism underscores the importance of regulatory support in stabilizing the currency amidst external pressures.
Bond yield movements
In addition to currency fluctuations, dollar-rupee forward premiums have also experienced a dip, with the 1-year implied yield decreasing by 1 basis point to 2.20%. This decline comes in response to rising near-maturity US bond yields, reflecting shifting dynamics in the global financial landscape. The 1-year US Treasury yield rose by 7 basis points to 4.25% during Asian trading hours, further influencing the currency markets.
The Indian rupee’s current positioning near its all-time low highlights the broader economic challenges faced by the country amidst a strengthening dollar and regional currency declines. As the rupee remains vulnerable to external pressures, the need for effective monetary policy and strategic interventions from the RBI becomes increasingly critical. Traders and investors alike will be closely monitoring developments in both domestic and global markets as they navigate this complex financial landscape. The interplay between currency values, equity performance, and global economic conditions will play a pivotal role in determining the future trajectory of the Indian rupee.
