The Indian rupee depreciated by 6 paise to 83.75 against the US dollar during early trade on Monday. This decline was influenced by negative equity market sentiment and the outflow of foreign funds. Forex traders noted that the upward movement in crude oil prices and a stronger dollar, driven by increased demand from importers at the month-end, exerted pressure on the local currency. The rupee had previously closed at 83.69 against the dollar on Friday.
Market Sentiment and Foreign Fund Outflows
The rupee’s depreciation was significantly impacted by negative sentiment in the equity markets. The Sensex declined by 353.49 points, or 0.41%, to 85,218.36, while the Nifty fell by 86.75 points, or 0.33%, to 26,092.20. Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Friday, offloading shares worth Rs 1,209.10 crore. This selling pressure contributed to the rupee’s decline as investors moved their funds out of the Indian market.
Forex traders also pointed out that the increased demand for the dollar from importers at the end of the month added to the pressure on the rupee. The dollar index, which measures the greenback’s strength against a basket of six currencies, rose by 0.07% to 100.17. This strengthening of the dollar further contributed to the rupee’s depreciation.
Impact of Crude Oil Prices
The upward movement in crude oil prices played a crucial role in the rupee’s decline. Brent crude, the international benchmark, advanced by 0.71% to $72.49 in futures trade. Higher crude oil prices increase India’s import bill, leading to a higher demand for dollars and putting pressure on the rupee. This trend is particularly concerning for India, which is heavily reliant on oil imports to meet its energy needs.
Analysts have noted that the rise in crude oil prices is driven by various global factors, including geopolitical tensions and supply constraints. These factors are likely to continue influencing the rupee’s performance in the near term. Additionally, the revival of economic activity in China may prompt foreign investors to withdraw from India and other emerging markets, further impacting the rupee.
Domestic Economic Indicators
Investors are also awaiting cues from domestic economic indicators, such as the Purchasing Manager’s Index (PMI) numbers, which are set to be released this week. These indicators will provide insights into the health of the Indian economy and could influence the rupee’s performance. A strong PMI reading could boost investor confidence and support the rupee, while a weak reading could have the opposite effect.
The Reserve Bank of India (RBI) has been closely monitoring the rupee’s performance and may intervene in the forex market to stabilize the currency if necessary. The central bank’s actions will be crucial in determining the rupee’s trajectory in the coming days. Analysts are also keeping an eye on the US core personal consumption expenditures (PCE) price index, which came in line with market expectations, firming hopes of further interest rate cuts by the Federal Reserve.
