The Indian rupee faced a second consecutive day of decline, closing 15 paise lower at 83.28 against the US dollar. The drop was attributed to multiple factors, including the greenback’s strength against major global currencies, ongoing foreign capital outflows, weak sentiment in the equity markets, and elevated crude oil prices.
Factors Behind Rupee’s Decline
- Strong US Dollar: The US dollar strengthened, reaching a ten-month high, driven by indications from a Federal Reserve policymaker suggesting a longer interest rate hike due to the resilience of the US economy. This strengthened dollar had a significant impact on the rupee’s depreciation.
- Weak Asian Markets: The rupee’s performance was also influenced by the overall weak sentiment in Asian markets, which contributed to the risk-off mood among investors.
- Rising US Treasury Yields: The 10-year US Treasury yields reached a 16-year high, adding to the appeal of the US dollar.
- Foreign Institutional Investors (FIIs): Persistent foreign fund outflows, with FIIs offloading shares worth Rs 693.47 crore in the capital market, exerted additional downward pressure on the rupee.
- Crude Oil Prices: The domestic currency faced headwinds due to the elevated levels of crude oil prices, which remained above USD 92 per barrel.
Market Outlook
Analysts expect the rupee to continue trading with a slight negative bias, influenced by global risk aversion, the strengthening US dollar, and the hawkish stance of the US Federal Reserve. FIIs’ selling pressure may further weigh on the currency. However, the decline in crude oil prices could provide some support at lower levels.
Conclusion
The Indian rupee’s decline against the US dollar reflects a combination of global and domestic factors, including the dollar’s strength, foreign fund outflows, and economic sentiment. As these factors evolve, the rupee’s performance in the coming weeks will be closely monitored by market participants.