The current bout of rupee depreciation is seen as driven primarily by the exit of foreign investors from India, which has put pressure on the rupee.
| Photo Credit: Reuters

The story so far: In the last week of December, 2024, the rupee breached the 85 mark against the U.S. dollar, touching an all-time low of 85.81. The currency depreciated about 3% in 2024, continuing its long-term trend of gradually but consistently losing value against the dollar.

What causes a currency to depreciate?

The price of any currency in the foreign exchange market is determined by the demand for the currency vis-a-vis its supply. This is similar to how the price of any other product is determined in the marketplace. When the demand for a product rises while its supply remains constant, this causes the price of the product to rise in order to ration the available supply. On the other hand, when the demand for a product drops while its supply remains constant, this causes sellers to drop the price of the product in order to attract sufficient buyers.

The only difference between the goods market and the forex market is that currencies are exchanged for other currencies rather than for goods in the foreign exchange market.

A currency depreciates against a foreign currency when the demand for it (in terms of the foreign currency) drops compared to its available supply in the market. When the currency’s value depreciates, the value of the foreign currency automatically appreciates on the other side. This is similar to how the purchasing power of your money depreciates or appreciates when the price of goods in the marketplace rise or fall, respectively.

There are various factors that determine the demand for and the supply of any currency in the foreign exchange market.

One of the most important determinants of the supply of a currency in the market is the monetary policy of a country’s central bank. A central bank adopting looser monetary policy compared with other central banks will cause the supply of its currency in the market (for both goods trade and investment purposes) to rise relative to other currencies, causing the currency’s value to drop. Central banks adopting relatively tighter monetary policy, on the other hand, are likely to see their currencies appreciate in value.

A crucial factor that determines the demand for any currency, on the other hand, is the demand among foreigners for the goods and assets of the country. Since foreigners will first have to purchase the local currency before they can purchase a country’s goods and assets, high demand for a country’s goods and assets translates to high demand for its currency and which in turn leads to a rise in the value of the currency. A fall in demand for a country’s goods or assets, on the other hand, will cause the value of its currency to fall.

What is behind the rupee’s fall?

The current bout of rupee depreciation is seen as driven primarily by the exit of foreign investors from India, which has put pressure on the rupee.

Global investors have been shuffling their investments across countries as central banks recalibrate their monetary policies to varying degrees. High inflation in the aftermath of the coronavirus pandemic led to monetary tightening by central banks which is now being reversed as inflation comes more under control. This has pushed investors to withdraw money from markets like India and invest in more advanced markets.

Meanwhile, the longer term trend of the rupee’s depreciation against the dollar is attributed to higher inflation in India than in the U.S. due to the Reserve Bank of India’s looser monetary policy compared to the U.S. Federal Reserve. India’s traditional demand for high-value imports such as crude oil and gold (which boosts demand for the dollar and weakens the rupee) to keep its economy going and its inability to boost exports (which can help boost demand for the rupee) have also contributed to the lackluster performance of the rupee. The RBI has been using its dollar reserves to prop up the value of the rupee by artificially increasing the supply of dollars in the foreign exchange market, and thus the dollar demand for rupees.

As a result, the value of India’s foreign exchange reserves dropped to an eight-month low of $640 billion as of the last week of December from over $700 billion in September.

Analysts believe the rupee’s depreciation would have been far worse if not for the RBI’s intervention to support the rupee against the dollar.

The RBI’s traditional stance has been to manage the rupee’s exchange value in such a way as to allow for a gradual depreciation in its value without too much volatility that could disrupt the economy.

Forex traders said the rupee is hovering around record low levels as the strong dollar weighed on the local unit.
| Photo Credit: REUTERS

The rupee settled flat at 84.07 (provisional) against the U.S. dollar on Tuesday, as the support from positive domestic markets and a softening crude oil prices was negated by persistent foreign fund outflows.

Forex traders said the rupee is hovering around record low levels as the strong dollar weighed on the local unit, while positive domestic equities, weak crude oil prices and suspected intervention by the Reserve Bank of India (RBI) supported the local currency at lower levels.

At the interbank foreign exchange, the rupee opened at 84.08 against the greenback. It traded in a tight range and ended the day at 84.07 (provisional), unchanged from its previous close.

On Monday, the rupee settled 1 paisa higher at 84.07 against the U.S. dollar.

The local currency touched its lowest closing level of 84.10 against the dollar on October 11.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.04% lower at 104.27.

According to traders, the rupee remains under intense pressure, mainly due to persistent foreign fund outflows. However, decline in crude price has helped ease pressure on the rupee despite ongoing market challenges.

Brent crude, the global oil benchmark, rose 0.74% to $71.95 per barrel in futures trade.

On the domestic equity market front, Sensex advanced 363.99 points, or 0.45%, to 80,369.03 points. The Nifty rose 127.70 points, or 0.52%, to 24,466.85 points.

Foreign institutional investors (FIIs) were net sellers in the capital markets on Monday, as they offloaded shares worth ₹3,228.08 crore, according to exchange data.

File.
| Photo Credit: Reuters

Rupee traded in a narrow range in morning trade on August 7, as the support from positive domestic equities was negated by strengthening of the American currency in the overseas market.

At the interbank foreign exchange market, the local unit opened at 83.86 but soon pared the gains to trade at 83.92, unchanged from its previous close.

On Tuesday, the rupee recovered from its all-time low level and settled for the day 17 paise higher at 83.92 against the U.S. dollar.

The local unit had slumped 37 paise to settle at an all-time low of 84.09 against the U.S. dollar on Monday.

Forex traders said risk aversion in the global markets, escalation of geopolitical tensions in the Middle East and outflows by foreign investors further dented investor sentiments.

“Indian rupee is expected to open at 83.91 after a fall to 83.96 on Tuesday with dollar demand gaining traction but RBI selling dollars to keep rupee within 84 levels,” said Anil Kumar Bhansali, Head of Treasury and Executive Director Finrex Treasury Advisors LLP.

For the day the rupee looks to be in a range of 83.85 to 84.05 but all depending on the Reserve Bank, as to where it wants the rupee to be in the coming days, Bhansali added.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, gained 0.28% to 103.26 points.

Brent crude, the global oil benchmark, rose 0.20% at $76.63 per barrel in futures trade.

“Brent oil prices dipped to $76.54 per barrel as mixed reading on inventories and demand concerns over slowing economic growth and weak demand kept prices under pressure,” Bhansali said.

In the domestic equity market, the 30-share BSE Sensex gained 642.04 points, or 0.82%, to 79,235.11 points, while the Nifty increased by 233.75 points, or 0.97%, to 24,226.30 points.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday as they offloaded shares worth ₹3,531.24 crore, according to exchange data.

Meanwhile, the Reserve Bank’s rate-setting panel started its three-day deliberations for the next set of bi-monthly monetary policy on Tuesday amid expectations of no change in benchmark interest rate in view of concerns on inflation and economic growth remaining steady.

The decision of the RBI Governor Shaktikanta Das-headed six-member Monetary Policy Committee (MPC) will be announced on Thursday.

The rupee depreciated 4 paise to settle at 83.52 (provisional) against the U.S. dollar on Wednesday, weighed down by elevated crude oil prices.

Forex traders said the Indian rupee depreciated on strength in crude oil prices, which touched a two-week high on Tuesday. However, a firm tone in domestic markets and favourable macroeconomic data cushioned the downside.

At the interbank foreign exchange market, the local unit opened at 83.51 and hit the intraday high of 83.49 and a low of 83.56 against the American currency during the session.

It finally settled at 83.52 (provisional) against the dollar, 4 paise lower than its previous close.

On Tuesday, the rupee depreciated 4 paise to settle at 83.48 against the U.S. dollar.

“We expect the rupee to trade with a slight positive bias on softening of the U.S. dollar and rise in global risk sentiments. Strength in the domestic markets may also support sentiments,” said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas “However, elevated crude oil price and FII outflows may cap sharp upside. Traders may take cues from ADP non-farm employment, weekly unemployment claims, ISM services PMI, Challenger job cuts, trade balance and factory orders data from the U.S. Investors may remain cautious ahead of FOMC meeting minutes,” Mr. Choudhary said.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.10% lower at 105.61.

Brent crude futures, the global oil benchmark, were trading 0.09% higher at $86.32 per barrel.

In the domestic equity market, Sensex hit the historic 80,000-mark and Nifty scaled a fresh lifetime high. The 30-share BSE Sensex finally ended the day 545.35 points, or 0.69%, up at 79,986.80 points. The broader NSE Nifty settled 162.65 points, or 0.67%, higher at 24,286.50 points.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday, as they offloaded shares worth ₹2,000.12 crore, according to exchange data.

On the domestic macroeconomic front, India’s services sector growth quickened in June from May’s five-month low.

The seasonally adjusted HSBC India Services Business Activity Index rose from 60.2 in May to 60.5 in June, pointing to a sharp expansion in output.

The rupee depreciated 6 paise to settle at 83.50 (provisional) against the U.S. dollar on Tuesday, weighed down by a strong greenback in the overseas market and elevated global crude oil prices.

Besides, a muted trend in domestic equities and foreign fund outflows dented investor sentiments, forex traders said.

At the interbank foreign exchange market, the local unit opened at 83.51 and hit the intraday high of 83.47 and a low of 83.56 against the American currency during the session.

It finally settled at 83.50 (provisional) against the dollar, 6 paise lower than its previous close.

On Monday, the rupee depreciated 10 paise to settle at 83.44 against the U.S. dollar.

“We expect the rupee to trade with a slight negative bias as the strength in the U.S. Dollar and surge in crude oil prices may keep the rupee under downside pressure,” said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas.

Mr. Choudhary further said the overall positive trend in the domestic markets and expectations of fresh foreign inflows may support the rupee at lower levels. Traders may take cues from Fed Chair Jerome Powell’s speech and JOLTS job openings data from the U.S.

“USD/INR spot price is expected to trade in a range of ₹83.20 to ₹83.75,” Mr. Choudhary said.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.09% higher at 105.99.

Brent crude futures, the global oil benchmark, were trading 0.76% higher at $87.26 per barrel.

In the domestic equity market, the 30-share BSE Sensex fell 34.74 points, or 0.04%, to close at a new peak of 79,441.45 points. The broader NSE Nifty settled 18.10 points, or 0.07%, lower at 24,123.85 points.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Monday, as they offloaded shares worth ₹426.03 crore, according to exchange data.

Reports of selling of dollars by state-run banks also supported the rupee.  File
| Photo Credit: REUTERS

The rupee appreciated 13 paise to settle at 83.42 (provisional) against the U.S. dollar on Tuesday, buoyed by fresh inflow of foreign capital and a firm trend in domestic equity markets, wherein benchmark indices scaled new peaks.

Forex traders said reports of dollar selling by public sector banks supported the Indian currency. However, higher crude oil prices capped the gains in the local unit.

At the interbank foreign exchange market, the local unit opened at 83.52 and hit the intraday high of 83.39 against the greenback during the session.

It finally settled at 83.42 (provisional) against the dollar, registering a gain of 13 paise from its previous close.

On Friday, the rupee had settled 1 paisa lower at 83.55 against the U.S. dollar.

Forex markets were closed on Monday on account of Bakri Id.

Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, said the rupee gained as domestic markets hit new all-time highs and amid fresh foreign fund inflows.

“Reports of selling of dollars by state-run banks also supported the rupee. However, a positive tone in the U.S. dollar and surge in crude oil prices capped sharp gains,” he said, adding, “USD-INR spot price is expected to trade in a range of ₹83.10 to ₹83.70.” Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading at 105.06, higher by 0.12%.

According to analysts, the U.S. dollar gained after hawkish comments by officials of the U.S. Federal Reserve, while market participants were awaiting further cues from retail sales and industrial production data from the U.S.

Brent crude futures, the global oil benchmark, declined 0.33% to $83.97 per barrel.

In the domestic equity market, the 30-share BSE Sensex rose 308.37 points, or 0.40%, to close at a new peak of 77,301.14 points. The broader NSE Nifty settled 92.30 points, or 0.39%, higher to close at an all-time high of 23,557.90 points.

Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Friday, as they purchased shares worth ₹2,175.86 crore, according to exchange data.

Analysts attributed the strong investor sentiment to the firm domestic macroeconomic outlook.

Fitch Ratings on Tuesday raised India’s growth forecast for current fiscal to 7.2%, from 7% projected in March, citing a recovery in consumer spending and increased investment.

Meanwhile, India’s forex reserves jumped $4.307 billion to a new all-time high of $655.817 billion for the week ended June 7, the Reserve Bank of India (RBI) on Friday.

The kitty had jumped $4.837 billion to $651.51 billion in the previous reporting week.

The rupee consolidated in a narrow range and settled for the day lower by 7 paise at 83.55 (provisional) against the U.S. dollar on Thursday even as both the domestic equity benchmark indices touched all-time high levels.

Forex traders said rupee was seen resilient against the dollar, even after volatility witnessed in the dollar index, due to CPI data and U.S. Fed’s policy decision.

At the interbank foreign exchange, the local unit opened at 83.52 and finally settled for the day lower by 7 paise at 83.55 (provisional) against the American currency.

On Wednesday, the rupee appreciated 11 paise to close at 83.48 against the U.S. dollar.

“Rupee traded sideways in a range of 83.52-83.57 with stability. Even after volatility witnessed in the dollar index, due to CPI data and Fed’s policy decision, the rupee was seen resilient against the dollar.”

“Now the trend in rupee will remain range bound but underlying tone remains weak as rupee consolidation continues near all-time low. Major fall in dollar below $103 only will give strong rupee buying above 83.00 till then 83.20-83.75 approx range will be seen,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading at 104.81, higher by 0.17%.

Brent crude futures, the global oil benchmark, declined 0.84% to $81.91 per barrel.

On the domestic macroeconomic front, India’s industrial production growth slipped to 3-month low of 5% in April 2024, mainly due to poor show by the manufacturing sector, though mining and power segments performed well, according to official data.

Meanwhile, retail inflation continued its downward slide to reach a one-year low of 4.75% in May due to a marginal decline of prices in the food basket and remained within the Reserve Bank’s comfort zone of below 6%, according to government data released on Wednesday.

On the domestic equity market, the 30-share BSE Sensex rose 204.33 points, or 0.27%, to close at a new peak of 76,810.90 points. The broader NSE Nifty settled 75.95 points or 0.33% higher at a record level of 23,398.90 points.

Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Wednesday as they purchased shares worth ₹426.63 crore, according to exchange data.

At the interbank foreign exchange market, the local unit opened at 83.56. 
| Photo Credit: REUTERS

Rupee appreciated 3 paise to close at 83.56 (provisional) against the U.S. dollar on Wednesday, on positive domestic market, wherein benchmark sensitive index Nifty touched a fresh all-time high.

Forex traders said rupee is trading in a narrow range as all eyes are on the U.S. May CPI print and the U.S. Federal Reserve’s rate decision on the global front and India’s Consumer Price Index (CPI) on the domestic front.

Moreover, the strength of the American currency in the overseas market and elevated crude oil prices weighed on the local unit and restricted the upmove.

At the interbank foreign exchange market, the local unit opened at 83.56. During the trading session, the rupee touched an intraday high of 83.51 and a low of 83.56. It finally settled for the day at 83.56 (provisional) against the greenback, registering an increase of 3 paise from its previous closing level.

On Tuesday, the rupee settled for the day lower by 9 paise at 83.59 against the U.S. dollar.

The Indian rupee appreciated on positive domestic markets. Nifty touched a fresh all-time high. However, a positive U.S. dollar and surge in crude oil prices capped sharp gains, said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas.

“We expect the rupee to trade with a slight negative bias as U.S. dollar is expected to strengthen amid expectations of a no change in Federal Open Market Committee (FOMC) meeting.”

“However, investors would watch out for Fed Chair Jerome Powell’s speech for cues on rate cut. Traders may take cues from India’s CPI and IIP data. Traders may also take cues from CPI data from the U.S. USD-INR spot price is expected to trade in a range of ₹83.20 to ₹84,” Mr. Choudhary added.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading at 105.20, lower by 0.03%. The U.S. dollar gained on expectations of further delay in first interest rate cut by the U.S. Federal Reserve.

Brent crude futures, the global oil benchmark, rose 1.11% to $82.83 per barrel.

On the domestic equity market, the 30-share BSE Sensex advanced 149.98 points, or 0.20%, to close at 76,606.57 points. The broader NSE Nifty settled 58.10 points, or 0.25%, higher to settle at an all-time high of 23,322.95 points.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday, selling shares worth ₹111.04 crore, according to exchange data.

The rupee plunged 26 paise to 83.40 against the U.S. dollar in early trade on Tuesday as initial counting for the Lok Sabha elections indicated a mixed trend.

A weak trend in domestic equity markets also dented sentiments in early deals, forex traders said.

According to television reports, the BJP-led NDA surged ahead with leads in more than 200 parliamentary seats out of 350 for which trends were available, with the opposition INDIA bloc ahead in 120.

Counting of votes for the Lok Sabha elections began on Tuesday morning across states and Union Territories.

At the interbank foreign exchange market, the local unit opened weak at 83.25 and lost further ground to trade at 83.40 against the greenback in initial deals, registering a fall of 26 paise from its previous close.

On Monday, the rupee closed at 83.14 against the U.S. dollar.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.05% lower at 104.02.

Brent crude futures, the global oil benchmark, fell 0.61% to $77.88 per barrel.

On the domestic equity market, benchmark equity indices Sensex and Nifty tanked in early trade as initial counting for the Lok Sabha polls showed a mixed trend.

The 30-share index dropped 1,715.78 points to 74,753 in early trade. The NSE Nifty tumbled 539.1 points to 22,724.80.

Foreign investors were net buyers of Indian equities on Monday as they purchased shares worth ₹6,850.76 crore on a net basis. FIIs bought shares worth ₹23,451.26 crore and sold equities worth ₹16,600.50 crore in the cash segment.

File Photo
| Photo Credit: REUTERS

The rupee rallied for the fourth consecutive trading session on May 24 and appreciated by 18 paise to settle at 83.11 (provisional) against the U.S. dollar on fresh foreign fund inflows and suspected intervention by the RBI.

Forex traders attributed the rally to ₹2.11 lakh crore record dividend by the RBI to the government for the fiscal ended March 31. It was more than double the budgeted expectation, helping shore up revenue ahead of a new government taking office.

At the interbank foreign exchange, the domestic unit opened at 83.26 and moved in the range of 83.03 and 83.26 against the greenback during the session.

The local unit finally settled at 83.11 (provisional) against the dollar, registering a rise of 18 paise from its previous close. In the last four trading sessions the local unit has added 39 paise against the American currency.

The forex market was closed on May 23 on account of ‘Buddha Purnima’.

On Wednesday, the rupee appreciated by 2 paise to settle at 83.29 against the U.S. dollar.

“The Indian rupee gained on suspected intervention by the Reserve Bank of India (RBI). The RBI’s ₹2.11 lakh crore dividend to the government also boosted market sentiments.

“Fresh FII inflows and a decline in crude oil prices also supported the rupee. The U.S. dollar strengthened as markets trimmed rate cut bets amid hawkish U.S. data and hawkish Federal Open Market Committee (FOMC) meeting minutes,” said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, declined 0.22% to 104.88.

Brent crude futures, the global oil benchmark, slipped 0.70% to $80.79 per barrel.

“We expect the rupee to trade with a positive bias on positive domestic equities and overall weakness in crude oil prices. However, weak global markets and strong dollar on hawkish U.S. data may cap sharp gains,” Mr. Choudhary said.

Traders may take cues from durable goods orders and revised consumer sentiment data from the U.S. USD-INR spot price is expected to trade in a range of ₹82.80 to ₹83.30, Mr. Choudhary added.

On the domestic equity market front, benchmark equity indices scaled new peaks in intra-day trade before ending flat.

The 30-share Sensex declined 7.65 points, or 0.01%, to settle at 75,410.39 points, and Nifty fell 10.55 points, or 0.05%, to close at 22,957.10 points.

Foreign Institutional Investors (FIIs) were net buyers in the capital markets on May 23, as they purchased shares worth ₹4,670.95 crore, according to exchange data.