Rupee weakens due to persistent demand for dollar among importers

The rupee weakened by 0.4 per cent against the dollar on Monday due to persistent demand for dollars among importers. Additionally, traders unwound long positions after the rupee fell past 88 per dollar mark, which further weighed on the local currency.

 

The rupee settled at 88.25 per dollar against the previous close of 87.85 per dollar.

 

Market participants said that earlier optimism over the US move to reduce India’s tariff rates below 20 per cent had briefly strengthened the currency to 87.60 during the week. However, the gains were short-lived as foreign portfolio investors (FPIs) continued to sell equities and the currency. Some dollar-buying by the Reserve Bank of India (RBI), possibly linked to maturing positions, also added pressure. 

 

While FPI outflows appear to have moderated, the selling trend persists. A potential positive outcome from the India-US trade discussions could support the rupee towards 87.00 levels. The RBI, meanwhile, seems comfortable allowing market-driven adjustments without defending specific levels.

 

“The overall trend of FPIs to sell equity may have slowed but the selling continues. Only a positive aspect from the India-US trade deal could revive the rupee towards 87.00 level, with the RBI allowing the rupee not to hold on to any particular level. The rupee could gain only 1.20 per cent in the last few sessions before falling today. The closing was slightly higher than today’s low at 88.24. Continued uncertainty around US-India trade relations and global risk appetite are setting the broader tone for the rupee,” said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP.

 

While the pressure remains on the rupee, it has emerged as the best-performing Asian currency by appreciating 0.62 per cent in October so far. Vietnam Dong was the second best-performing currency with 0.47 per cent appreciation.

 

“The pressure is there, but intervention by the RBI has kept the rupee afloat. Now, there is expectation of a rate cut by the Federal Reserve, which will help the rupee in the near term,” said a dealer at a state-owned bank.

 

In the current financial year so far, the rupee has depreciated by 3.12 per cent against the dollar while in the current calendar year, it has witnessed 2.98 per cent depreciation.