The rupee ended above the 84 per US dollar mark for the first time on Friday, closing at 84.07. The fall in the rupee came amid outflows from foreign institutional investors, concerns over a surge in oil prices and higher demand for the greenback from foreign banks.
How much did the rupee fall?
The domestic currency ended at 84.07 against the US dollar on Friday before dropping to 84.10 during the day. On Thursday, the rupee closed at 83.98 per dollar. Analysts said the rupee has not fallen below 84 as the RBI has been protecting the level for the last two months. On September 12, the local currency had fallen to a record low of 83.99 against the US dollar.
What triggered the slide?
The slide in the rupee was mainly on account of concerns over the rise in crude oil prices, outflows from foreign funds to China and an increase in demand for the US currency from foreign banks.
“Indian Rupee fell below the 84 per US Dollar mark for the first time on demand from foreign banks amid FII outflows and elevated crude oil prices. Weak domestic markets also weighed on the Rupee,” said Anuj Choudhary, Research Analyst, Sharekhan by BNP Paribas.
However, the overnight softening of the US Dollar index prevented a sharp fall in the rupee. The dollar fell on higher-than-expected weekly unemployment claims data from the US which overshadowed a hotter-than-expected inflation. US inflation rose 0.2 per cent month-on-month versus the forecast of 0.1 per cent and core CPI rose 0.3 per cent versus the forecast of 0.2 per cent. Annual inflation also rose more than forecast.
Recovery in the domestic equity markets supported the rupee at lower levels, said Rahul Kalantri, Vice President (Commodities), Mehta Equities. However, aggressive selling by foreign investors in the domestic equity markets and higher crude oil prices restricted gains in the rupee.
Why are foreign investors selling?
Foreign portfolio investors (FPIs) have been following a strategy of ‘Sell India, Buy China’ after the Chinese authorities announced monetary and fiscal measures to stimulate the slowing economy.
“FPI money has been moving to Chinese stocks, which are cheap even now,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
In the current month (till October 11), FPIs have offloaded Rs 58,711 crore worth of equities and Rs 1,635 crore of debt. The selling in equities from FPIs comes after four consecutive months of buying of local shares. Between June and September, foreign investors bought Rs 1.24 lakh crore of equities, according to the National Securities Depository Ltd (NSDL) data.
What is the outlook on the rupee?
Analysts expect the rupee to remain volatile due to uncertainty over crude oil prices and fluctuation in the dollar index.
“We expect the Rupee to trade with a negative bias on selling pressure from FPIs and geopolitical uncertainty amid the ongoing tensions in the Middle East. Overall strength in the US Dollar may further pressurise the rupee,” said Choudhary.
However, the overall decline in crude oil prices may support the Rupee at lower levels, he said.
According to Jateen Trivedi, VP Research analyst, LKP Securities, the rupee may extend its weakness towards 84.25-84.35, especially if it holds below 84. It is expected to get support at 84.20-84.35 levels and resistance at around 83.70-83.80 levels
