Rupee Depreciates 14 Paise To 90.09 Against US Dollar: A Detailed Analysis
The rupee depreciated 14 paise to close at 90.09 (provisional) against the US dollar on Monday, as elevated crude oil prices and persistent foreign fund outflows dented investor sentiments. This recent downturn in the value of the rupee has sparked concerns among Indian investors, who are closely watching the developments in the forex market.
Factors Contributing to Rupee Depreciation
Forex traders pointed out that multiple pressures, such as sustained importer demand for the American currency, foreign fund outflows from equities, and lingering uncertainty over the India-US trade deal, are keeping investor sentiment fragile. The interbank foreign exchange market saw the rupee open at 90.07, then give up ground and fall to an intra-day low of 90.26 against the US dollar, down 31 paise from its previous close.
At the end of the trade on Monday, the rupee settled at 90.09 (provisional) against the greenback, down 14 paise over its previous close. On Friday, the rupee settled at 89.95 against the US dollar, after the Reserve Bank of India cut the key policy interest rate for the first time in six months.
Reserve Bank of India’s Stance on Rupee Depreciation
Reserve Bank Governor Sanjay Malhotra said the central bank does not target any band for the rupee in the forex market, and allows the domestic currency to find its own correct level. Read more about the Reserve Bank of India’s policy on the rupee.
"We don’t target any price levels or any bands. We allow the markets to determine the prices. We believe that markets, especially in the long run, are very efficient. It’s a very deep market," he said, while replying to a question on rupee depreciation at a post-monetary policy press meet on Friday.
Impact of Fed’s Policy Outcome on Rupee
Forex traders said investors’ focus has now shifted to the Fed’s policy outcome on Dec. 9-10. Markets are placing nearly a 90% probability on a rate cut next week. The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.01% lower at 98.98.
Understand how the Federal Reserve’s policy outcome can impact the rupee.
India-US Trade Agreement and Its Effect on Rupee
Meanwhile, India and the United States will commence three-day talks on the first phase of their proposed bilateral trade agreement from Dec. 10. The outcome of these talks is expected to have a significant impact on the rupee’s value against the US dollar.
Learn more about the India-US trade agreement and its potential impact on the rupee.
Domestic Equity Market and Foreign Institutional Investors
On the domestic equity market front, Sensex tanked 609.68 points to settle at 85,102.69, while the Nifty dropped 225.90 points to 25,960.55. Foreign institutional investors sold equities worth Rs 438.90 crore on Friday, according to exchange data.
Stay updated with the latest Sensex and Nifty trends.
India’s Forex Reserves and Their Impact on Rupee
Meanwhile, India’s forex reserves dropped USD 1.877 billion to USD 686.227 billion during the week ended Nov. 28, the RBI said on Friday. In the previous reporting week, the overall reserves had declined by USD 4.472 billion to USD 688.104 billion.
Track the latest trends in India’s forex reserves.
Conclusion
The recent depreciation of the rupee against the US dollar has significant implications for Indian investors. Understanding the factors driving this trend and its impact on the economy is crucial for making informed investment decisions. As the rupee continues to fluctuate, investors must stay updated with the latest developments in the forex market and their potential impact on the Indian economy.