The Indian rupee declined to ₹94.93 against the US dollar in Wednesday's opening trades, marking a fresh low as the greenback continued its strong rally. According to Business Standard, the rupee opened at ₹94.88 per dollar and hit a low of 94.93 during the session, extending its third straight session of pressure. The currency's recent recovery, supported by lower crude oil prices and measures by the Reserve Bank of India, faced renewed pressure this week after the Federal Reserve adopted a more hawkish stance at its latest policy meeting. The currency's weakness was primarily driven by a surge in the dollar index to a fresh one-year high, with the index scaling above 101 mark for the first time in more than a year, continuing to hover near its highest level since May last year. The U.S. dollar extended gains as investors sought shelter from a tech stock sell-off and positioned for Fed rate hikes, with money markets now close to fully pricing in a US rate increase by September.
Foreign institutional investors turned net buyers, purchasing equities worth ₹17.86 crore on a net basis on Tuesday, according to exchange data as reported by The Hindu BusinessLine. This marked a significant reversal from Monday's outflows of ₹635.91 crore. On Wednesday, domestic equity markets showed signs of recovery with the Sensex climbing 187.63 points to 76,388.31 and the Nifty rebounding 57.75 points to 23,878.85. The rupee's weakness was further compounded by these factors, with FII outflows and a weaker start to morning trade at the domestic equity markets putting additional pressure on the currency. As per Choice Broking, mounting expectations of a Federal Reserve rate hike and broad-based dollar strength weighed on Asian currencies, with the greenback hovering near a 13-month high.
The rupee's decline was cushioned by a sharp fall in global crude oil prices, with Brent crude trading lower by 1.02% at $76.29 per barrel in futures trade, according to The Hindu BusinessLine. Market participants noted that easing concerns over disruptions in the Strait of Hormuz, with more stranded tankers expected to move through the route, helped keep crude prices lower. However, currency traders said oil prices are no longer the primary factor influencing the rupee's movement, with one trader at a private bank noting that "the dollar's strength and recurring risk-off sentiment across Asian and US markets are now driving the rupee more than crude oil". Anuj Choudhary, Research analyst at Mirae Asset ShareKhan, had previously noted that US waiver on sanctions on Iranian oil has led to a sharp fall in oil prices, which helped limit the rupee's downside. Currency dealers noted that the focus has gradually shifted from oil prices to the US Federal Reserve's policy outlook.
According to Choice Broking, "The rupee opened weaker against the dollar, extending its third straight session of pressure as the greenback stayed broadly firm. Early trade suggests the pair may remain biased higher as importer demand and dollar buying continue to outweigh selective exporter supply." Kaveri More, Commodity Analyst at Choice Broking, noted that "A sustained break above 95 could open the door toward 95.50 and then 96.00, while immediate support is seen around 94.10-94. Near-term direction will likely hinge on broader dollar sentiment, crude oil trends, and foreign portfolio flows, with the RBI's presence also keeping volatility in check." The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 101.48, up 0.08%, continuing to support the dollar's strength. Analysts have since revised their outlook, with expectations shifting from no rate hikes to the possibility of one or two increases later this year, as the Federal Reserve's more hawkish stance has overshadowed previous support from lower oil prices and RBI measures. The upcoming PCE inflation report, the Fed's preferred gauge, will be closely watched this week for further clarity on future monetary policy direction.
