Rupee underperforms Asian peers in June so far despite weak US dollar

The rupee remained one of Asia's worst-performing currencies in June amid foreign fund outflows from debt, weak equity inflows, rising oil prices and geopolitical stress

Despite a broad-based weakening of the US dollar, the Indian rupee remained under pressure and was one of the worst performing Asian currencies in June so far.

 

The weakness in the local currency is primarily attributed to persistent foreign portfolio investor (FPI) outflows from debt, muted activity in the equity market, and lackluster FDI inflows in recent months.

 

“Despite broader dollar weakness globally, this trend has not reflected in the USD/INR pair,” said V R C. Reddy, head of treasury at Karur Vysya Bank.

 

“Over the past month, the rupee has largely hovered around the 85.50 mark. While most other Asian currencies have gained modestly— between 1 to 2 per cent—during this period, the rupee has remained under pressure. The sustained FPI outflows from the debt segment, coupled with subdued equity market participation in June and weak foreign direct investment (FDI) inflows in recent months, have added to the rupee’s woes,” he added. 

 

Foreign investors, in June so far, have net sold ₹5,402 crore worth of domestic equities, while they have net sold ₹13,848 crore of debt. 

 

In June so far, the rupee has depreciated by approximately 0.6 per cent, placing it among the poorest performing Asian currencies for the month. In the current calendar year so far, the domestic currency has depreciated by 0.5 per cent against the greenback, while it has depreciated by 0.7 per cent in the current financial year.

 

This decline has been further exacerbated by the rally in global crude oil prices and rising geopolitical tensions in the Middle East. These developments have increased global risk aversion, prompting investors to pull capital from emerging markets, including India.

 

It had depreciated sharply against the greenback on Friday to settle below the 86 per dollar mark, a two-month low since April 9, on the back of a surge in crude oil prices driven by escalating tensions in West Asia.

 

“The Indian rupee has witnessed a significant depreciation against the US dollar and is among the worst-performing currencies in Asia,” Dilip Parmar, senior research analyst, HDFC Securities, said. “This sharp fall can be attributed to heavy foreign fund withdrawals, an overall risk-off sentiment in the markets, soaring global crude prices, and the US dollar’s renewed strength as a safe-haven currency following Israel’s military action against Iran,” he added.

 

Meanwhile, the Dollar Index has seen a pronounced decline. As of June 15, it has fallen nearly 10 per cent since the beginning of the year, touching its lowest level in more than three years. On June 12, the index hit an intraday low of 97.61, its weakest level since 2022.

 

It settled at 98.31 on Friday. It measures the strength of the greenback against a basket of six major currencies. The decline in the dollar is largely driven by concerns over the US economic outlook, uncertainties around trade policy, and growing expectations of interest rate cuts by the Federal Reserve. Market analysts suggest that the greenback could face continued downward pressure in the coming months.