Rupee Trades in Narrow Range Against US Dollar in Early Trade
The Indian rupee began the week with a range-bound trade, depreciating by 5 paise to 86.76 against the US dollar in early dealings on Monday. The rupee’s movement was largely influenced by continued foreign fund outflows and the negative trend in domestic equities, which kept pressure on the currency.
Key Factors Impacting the Rupee
Forex traders attributed the rupee’s weakness to foreign banks’ dollar-buying activities and importers scrambling to secure dollars amid fears of further depreciation. The global economic uncertainty continues to weigh on the currency, with fluctuations in the international markets influencing domestic currency movements. The overall sentiment in the market remains cautious, as investors assess the ongoing risks in global markets, including geopolitical tensions, inflationary pressures, and the potential for further interest rate hikes by major central banks.
The rupee’s negative bias reflects concerns over the US dollar’s strength, as the currency remains a safe-haven asset in uncertain times. Foreign institutional investors (FIIs) have been withdrawing funds from emerging markets like India, contributing to the demand for the US dollar and further pushing the rupee down.
Domestic Factors and Equity Market Sentiment
Additionally, the negative trend in domestic equities also played a significant role in the rupee’s performance. As Indian stock markets faced volatility, investor sentiment turned cautious, and the resulting capital outflows added to the pressure on the rupee. A weaker equity market generally leads to reduced foreign investment inflows, which in turn heightens the demand for the dollar.
The continued uncertainty in global markets—stemming from factors such as monetary tightening by the Federal Reserve, global inflationary concerns, and supply chain disruptions—has contributed to a cautious approach by foreign investors. As a result, these developments are expected to keep the rupee under pressure in the short term.
Outlook for the Indian Rupee
In the near term, the rupee is likely to continue trading in a narrow range, with further depreciation risks if foreign outflows persist or if the dollar strength continues to dominate global markets. Traders will closely monitor upcoming global economic data, particularly any developments in US interest rate policies, as well as domestic inflation and monetary policy announcements from the Reserve Bank of India (RBI).
The rupee’s trajectory will largely depend on how these factors evolve and whether importers’ demand for dollars increases or subsides. Should foreign flows into the Indian market resume or if there is a shift in the global risk appetite, the rupee may stabilize or strengthen.
