The Indian rupee extended its losses against the US dollar on Friday, closing weaker as a selloff in domestic equities, persistent foreign capital withdrawals, and higher global crude oil prices weighed on sentiment.
Rupee's Trading Session: A Volatile Day
In the interbank foreign exchange market, the local currency commenced trading at 89.84 against the greenback. It faced significant pressure during the day, sliding to an intra-day low of 89.94, marking a decline of 23 paise from its previous closing level. However, it managed to recoup some losses later in the session, finally settling at 89.86, down 15 paise for the day.
This follows a downward move earlier in the week. On Wednesday, the rupee had closed eight paise lower at 89.71. Forex and stock markets were shut on Thursday for the Christmas holiday.
Key Factors Driving the Rupee's Decline
Forex traders pointed to a confluence of domestic and global factors that created headwinds for the Indian currency. The dominant theme was a risk-off mood in global financial markets, which typically boosts demand for safe-haven assets like the US dollar.
Domestically, sustained selling by Foreign Institutional Investors (FIIs) continued to drain capital from the markets. Exchange data revealed that FIIs were net sellers of Indian equities worth Rs 1,721.26 crore on Wednesday alone, adding to the rupee's downward pressure.
Furthermore, importers' consistent demand for US dollars to meet payment obligations and uncertainty surrounding key global trade deals further dampened sentiment for the rupee.
Broader Market and Global Cues
The weakness in the currency was mirrored by a sharp correction in the domestic equity benchmarks. The Sensex plummeted 367.25 points to end at 85,041.45, while the Nifty dropped 99.80 points to settle at 26,042.30.
On the global front, the dollar index, which measures the greenback's strength against a basket of six major currencies, was up 0.10% at 98.07. Meanwhile, Brent crude futures, the international oil benchmark, rose 0.26% to USD 62.41 per barrel. Higher crude prices negatively impact India's trade deficit, as the country is a major oil importer, thereby putting pressure on the rupee.
The combined effect of these factors led to a challenging trading environment for the Indian rupee, highlighting its sensitivity to both local equity market performance and global financial flows.
