That’s a significant movement for the Indian currency. A fall of 8 paise means the rupee has weakened against the US dollar, making imports more expensive and exports more competitive.
Here is a summary of the likely factors that contributed to the rupee closing at 89.53 against the US dollar on the day you referenced:
📉 Key Reasons for the Rupee’s Fall
The depreciation of the rupee is generally attributed to a combination of persistent dollar demand and broader macroeconomic concerns:
- Strong Demand for the US Dollar: Market demand for the US dollar from importers (who need to pay for goods like crude oil, which was also trading higher) and corporations often puts pressure on the rupee.
- Widening Trade Deficit: A consistently high trade deficit (where imports exceed exports) creates a fundamental imbalance, leading to higher demand for the dollar to settle international payments.
- Foreign Institutional Investor (FII) Outflows: Foreign investors continuing to sell equities in the Indian stock market result in the repatriation of funds, which increases the supply of rupees and demand for dollars, thus weakening the rupee.
- Delayed India-US Trade Deal: The ongoing uncertainty and delay in finalizing a framework trade deal with the US are cited by analysts as dampening market sentiment and limiting capital inflows that could otherwise support the rupee.
- Limited Central Bank Intervention: Forex traders often look to the Reserve Bank of India (RBI) for intervention to stabilize the currency. Limited or perceived insufficient intervention allows market forces to push the rupee lower.
This move follows a recent trend of persistent weakness for the Indian rupee, with analysts noting that the underlying demand-supply imbalance for the dollar is likely to keep the currency under pressure in the near term.
Would you like to know what analysts are predicting for the rupee’s movement over the next few weeks?
