The Indian rupee plunged 17 paise on Thursday, closing at an over two-month low of 83.61 against the US dollar. This decline comes despite domestic equity markets reaching fresh peaks, as surging crude oil prices and renewed geopolitical tensions in the Middle East exerted pressure on the local currency.
At the interbank foreign exchange market, the rupee opened at 83.43 and briefly touched an intra-day high of 83.42 against the greenback. However, it soon fell to an all-time low of 83.68 during the session, before finally settling at 83.61, marking a significant drop from its previous close of 83.44 on Wednesday. The last time the rupee closed at this level was on April 16 this year.
Geopolitical Tensions and Strong US Dollar Weigh on Rupee
Forex traders noted that the influx of foreign capital and the positive momentum in domestic equity markets were not enough to counteract the firm American currency, which has been strengthening against major rivals overseas. Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, attributed the rupee’s depreciation to the robust US dollar and mixed to weak Asian markets.
“Traders may take cues from weekly unemployment claims, building permits, Philly Fed manufacturing index, housing starts, and current account data from the US. USD-INR spot price is expected to trade in a range of Rs 83.30 to Rs 83.80,” Choudhary said.
The dollar index, which measures the greenback’s strength against a basket of six currencies, was trading 0.21% higher at 105.10. The rise in the US dollar was partly due to heightened geopolitical tensions, with Russia resuming aerial attacks on Ukraine’s power grid and Kyiv’s forces targeting Russian oil facilities with drone strikes.
Oil Prices Hold Firm Amid Bullish Demand Outlook
Brent crude futures, the global oil benchmark, advanced by 0.18% to $85.22 per barrel. Pranav Mer, Vice President of EBG – Commodity & Currency Research at JM Financial Services Ltd., commented on the oil market dynamics, “Oil prices are stuck in a range but holding firm above $80 per barrel in the overseas market. This is supported by a forecast of bullish demand outlook for the rest of the year and higher US fuel demand during the current summer driving season, but gains are capped by higher global oil inventories.”
Domestic Equity Markets Hit New Highs
In contrast to the struggling rupee, the domestic equity markets saw positive gains. The 30-share BSE Sensex climbed 141.34 points, or 0.18%, to close at a fresh peak of 77,478.93 points. Similarly, the broader NSE Nifty rose by 51.00 points, or 0.22%, to hit its lifetime high of 23,567.00 points.
Foreign Institutional Investors (FIIs) continued to be net buyers in the capital markets, purchasing shares worth Rs 7,908.36 crore on Wednesday, according to exchange data. This strong FII activity reflects sustained confidence in India’s economic outlook, despite the rupee’s recent setbacks.
As the rupee navigates these turbulent waters, market participants will be closely watching global geopolitical developments, US economic data, and central bank policy decisions to gauge the currency’s future trajectory.