The Indian rupee continued to weaken for the third straight session on Friday, slipping 10 paise to trade at 90.44 against the US dollar in early deals. Persistent foreign fund outflows and renewed strength in the dollar weighed on the local currency, even as softer crude oil prices and a positive trend in domestic equities helped limit sharper losses, Reuters cited Forex as reporting.
In the interbank foreign exchange market, the rupee opened at 90.37 before sliding further to 90.44, lower than Thursday’s closing level. Earlier, the currency had declined by 11 paise on Wednesday and 6 paise a day before that.
Key factors likely to keep pressure on the rupee
Strong US dollar lifts pressure on emerging currencies
The dollar index climbed to a six-week high after fresh US labour market data pointed to economic resilience. Initial jobless claims in the US fell to 198,000 for the week ended January 10, well below market expectations. The data strengthened bets that the US Federal Reserve may delay interest rate cuts, keeping the dollar well-supported and putting pressure on emerging market currencies like the rupee.
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Hawkish signals from US Fed
Adding to the rupee’s challenges were hawkish comments from US Federal Reserve officials, who reiterated that any rate cuts would depend on sustained progress towards the 2% inflation target, reportedly.
Trade deficit and deal delays in focus
India is almost ready with some of the most important trade agreements with the US and the European Union, Mint cited Commerce Secretary Rajesh Agrawal as saying. However, there is no concrete timeline yet for the proposed trade deal between India and the US, even as trade agreement talks are progressing steadily.
“Rupee movements will depend on many events like the outcome of the US-India trade agreement, foreign portfolio capital flows and India’s trade deficit. A favourable outcome from the US-India trade deal can strengthen the rupee since that can reverse FII outflows too,” said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.
Reflecting similar views, Rahul Kalantri, VP (Commodities) at Mehta Equities Ltd, said that the rupee’s outlook is weak as of now due to the lack of any concrete progress on the India-US trade agreement.
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FPI outflows add to currency stress
Meanwhile, FPIs have remained net sellers in January, selling Indian equities worth ₹19,015 crore so far. Continued outflows have added to dollar demand, making any recovery in the rupee difficult.
Rupee outlook remains cautious
Amit Pabari, CR Forex Advisors, told Mint that the pair would find stiff resistance in the 90.30–90.50 area. A strong close above this zone can provide an extended high towards 91.20–91.50 levels, while 89.50 is a pivotal support on the lower side.
“For now, the rupee walks a narrow bridge, supported by the RBI below, tested by the dollar above, and guided by sentiment that is still waiting to turn,” said Pabari.
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