Rupee Continues to Decline as Dollar Strengthens

The Indian rupee began trading at 85.10 against the US dollar but soon fell by 3 paise, reaching a record low of 85.15.

The domestic currency initially showed slight gains at 85.10 compared to the previous day’s closing value of 85.12. This early uptick occurred amidst low trading volumes, largely due to the upcoming Christmas holiday. However, a combination of global and domestic pressures continues to challenge the rupee's performance.

Factors Behind the Rupee's Decline

Shortly after the open, the local currency depreciated to a new low of 85.15. Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP, noted that the rupee's value diminished as the dollar index rose above 108, while US 10-year Treasury yields climbed to 4.58%. Current market dynamics show tepid inflows and ongoing outflows affecting the rupee's stability.

"The continuing demand for the dollar is clearly affecting the rupee's value," Bhansali commented. He indicated that exporters are likely to hold back while setting a stop-loss at 84.90, while importers are recommended to capitalize on purchasing opportunities as they arise.

Global Influences on the Currency Market

The dollar index, which is a measure of the dollar's strength against other currencies, reached 108.11. This surge is attributed to the robust performance of the US economy, rising Treasury yields, and widening interest rate differentials between the US and other countries. The price of Brent crude also remained steady at $72.58 per barrel during early trading hours.

Amit Pabari, managing director at CR Forex Advisors, noted that global trends, particularly the Federal Reserve's aggressive monetary policy and a depreciating Chinese yuan, have significant implications for the rupee's value. Domestically, the widening trade deficit coupled with muted economic growth adds additional pressure on the rupee.

Additionally, India's foreign exchange reserves have seen a notable decline from a previous high of $704.89 billion in September to approximately $654.85 billion as per the latest reports from the Reserve Bank of India (RBI).

Future Outlook for the Rupee

Looking to the near future, analysts expect market volatility to remain low due to light trading volumes during the holiday season. However, the sustained high level of the dollar index will likely continue to exert pressure on emerging market currencies, including the rupee. Pabari forecasts that the rupee may trade within a range of 84.70 to 85.20 in the upcoming days.

With these ongoing challenges, market participants remain cautious as they navigate the complexities of international currency fluctuations and local economic conditions.

Closing Thoughts

As the Indian rupee hits new lows, stakeholders keenly watch market developments across global economies. The inflationary pressure, interest rates, and international policies will be instrumental in determining the rupee’s trajectory in the future.

Rupee, Dollar, Exchange