Rupee weakens past 86 per dollar on FPI outflows, import demand

The rupee fell past the 86 mark on dollar demand from importers and FPIs, before recovering slightly on suspected RBI intervention in currency markets

The rupee weakened past 86 per US dollar on Wednesday due to outflows from foreign portfolio investors (FPIs) coupled with strong bids for the greenback in the non-deliverable forward (NDF) market, said dealers. There was also strong dollar demand from importers.  

 

The local currency fell up to 86.03 against the dollar during the day before regaining some ground by the end of trade to settle at 85.91 per dollar. This is against the previous close of 85.59. 

 

“There were outflows, and unwinding of short positions,” said a dealer at a state-owned bank.

 

The rupee has depreciated by 0.5 per cent in the current financial year so far. During the current calendar year, it has witnessed a 0.3 per cent depreciation so far. 

 

Market participants said that state-owned banks sold dollars likely on the behalf of the Reserve Bank of India (RBI), which avoided further depreciation.  

 

“Oil companies remained active buyers, with nationalised banks purchasing dollars in the morning around the 84.75 level. However, the RBI’s presence helped limit the decline of the rupee, which touched a low of 86.03 before closing at 85.90,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP. 

 

“Exporters sold at lower rupee levels but remained cautious, wary of the currency breaching and sustaining above the 86 mark. The prevailing sentiment is that the RBI is unlikely to allow a breach of 86, especially with the dollar index on a downward trend and most Asian currencies trading stronger,” he added. 

 

Of the past seven sessions, the rupee has witnessed depreciation against the dollar in six sessions, making it the worst performing Asian currency.

 

Market participants now await the RBI’s Monetary Policy Committee meeting outcome on Friday for further cues.