The Indian rupee closed 10 paise lower at 83.50 against the US dollar on Monday, pressured by a strengthening American currency and a tepid performance in domestic equities. The rupee’s decline, however, was tempered by easing political uncertainties following Narendra Modi’s swearing-in for a record-equalling third term as Prime Minister.
At the interbank foreign exchange market, the rupee opened at 83.48 and ended the day at 83.50 per US dollar. This drop comes after a 13 paise appreciation on Friday, when the rupee had settled at 83.40.
“We expect the rupee to trade with a slight negative bias on strong US Dollar amid rising expectations of a delay in interest rate cut by the US Federal Reserve due to tight job market,” commented Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas.
Despite the rupee’s dip, several factors provided some support. Easing crude oil prices and optimism over a stable government contributed to limiting further declines. Investors are also closely monitoring inflation data from both India and the US, which could influence the rupee’s future movements. The upcoming Federal Open Market Committee (FOMC) meeting this week is another key event that traders are watching.
The dollar index, which measures the greenback against a basket of six major currencies, rose by 0.37% to 105.27, reflecting the dollar’s strength. Meanwhile, Brent crude futures, the global oil benchmark, saw a slight increase of 0.21% to USD 79.79 per barrel.
On the political front, Prime Minister Narendra Modi’s new 72-member Union Council of Ministers, which includes senior BJP leaders such as Rajnath Singh, Amit Shah, Nitin Gadkari, Nirmala Sitharaman, and S Jaishankar, took oath at the Rashtrapati Bhavan. This continuity in leadership is expected to bring stability, which might positively influence investor sentiment.
In domestic equity markets, the 30-share BSE Sensex fell by 203.28 points, or 0.27%, to close at 76,490.08 points. The broader NSE Nifty also declined, closing 30.95 points or 0.13% lower at 23,259.20 points.
Despite the equity market downturn, Foreign Institutional Investors (FIIs) were net buyers on Friday, purchasing shares worth Rs 4,391.02 crore, according to exchange data.
In a positive development, India’s forex reserves surged by USD 4.837 billion to a new all-time high of USD 651.51 billion for the week ending May 31, according to the Reserve Bank of India (RBI). This increase followed a previous week’s decline of USD 2.027 billion, bringing the reserves to USD 646.673 billion.
As the rupee faces continued pressure from external factors, the stability provided by a strong forex reserve and a clear political mandate may help navigate through these challenges.