Rupee trades near record low of 84.07 per dollar amid persistent FII outflow; likely to remain rangebound, say analysts

The Indian rupee traded flat, hovering near its record low against the US dollar on Friday, pressured by a strong greenback and continued foreign fund outflows. The local currency was at 84.07 against the US dollar, nearly unchanged from its close at 84.0775 in the previous session.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, was higher by 0.03 per cent at 103.95.

The local currency had declined to its all-time low of 84.0825 earlier this week and has been trading in a narrow range since then, failing to see any recovery and also managing to avoid deeper losses, supported by the Reserve Bank of India’s (RBI) intervention.

“The Indian rupee remains under pressure, trading near its all-time low, but the 84.10 mark appears to be a crucial support level as the RBI actively steps in to manage volatility. This intervention is evident in the Rupee’s relative stability, making it one of the least volatile currencies among emerging markets recently,” said Amit Pabari, MD, CR Forex Advisors.

The key challenge remains the persistent outflow of foreign institutional investments (FIIs) from Indian equities. The FIIs have sold more than ₹97,000 crore worth of Indian equities so far in October, data from stock exchanges showed.

“Indian stocks, perceived as overvalued compared to global peers, have seen selling pressure from FIIs, which is weighing on market sentiment and limiting the Rupee’s potential upside. However, once these outflows stabilize, it could provide a tailwind for the Rupee,” Pabari said.

Key factors behind Rupee weakness

Here are the primary factors contributing to the recent weakness in the Indian rupee:

A recent surge in US Treasury yields has heightened concerns over a slower interest rate cuts by the US Federal Reserve. This has strengthened the US Dollar Index, which recently reached a nearly three-month high against major global currencies, peaking at 104.38.

Geopolitical tensions in the Middle East, coupled with uncertainty surrounding the upcoming US presidential elections 2024, have driven investors towards safer assets, according to analysts.

An increase in crude oil prices has further pressured the rupee, with Brent crude, the international benchmark, rising by 0.22% to $74.54 per barrel in futures trading.

On the domestic front, continued outflows from FIIs have triggered a significant correction in India’s benchmark indices. The Sensex and Nifty 50 are both down over 7% from their record highs reached at the end of September, adding further pressure on the rupee.

Rupee Outlook

Persistent FII outflows and a resilient greenback have continued to weigh on the rupee, keeping it close to its lowest levels.

According to Pabari, in the short term, USDINR is expected to trade within a narrow range of 83.80 to 84.20, with a bias toward the lower end.

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