The Indian rupee weakened against the US dollar in early trade on Thursday, November 5, giving up some of its recent gains as demand for the American currency picked up in overseas markets. The domestic currency slipped 9 paise to 94.55 against the dollar, despite a strong rally in Indian equities and a sharp decline in international crude oil prices.
The rupee opened at 94.36 at the interbank foreign exchange market before losing ground to trade at 94.55. The decline followed a 29-paise recovery on Wednesday, when the currency settled at 94.46 against the dollar. The latest movement highlights the pressure facing the rupee even as improving global sentiment and lower oil prices provide some relief to the domestic economy.
Currency markets have been responding to a combination of global political developments, changing investor expectations and movements in commodity prices. While the US dollar’s strength in overseas markets weighed on the rupee, falling crude prices and renewed foreign investment in Indian equities helped limit its losses.
The broad strength of the US dollar in international markets was among the main reasons behind Thursday’s decline. Demand from market participants seeking to meet their dollar requirements also contributed to the pressure on the domestic currency.
The dollar index, which measures the greenback against a basket of six major currencies, was trading at 101.22, down 0.34%. Despite the decline in the index, the rupee struggled to extend its recent recovery.
The currency’s movement also reflects the cautious approach adopted by traders amid uncertainty surrounding global economic and geopolitical developments. The rupee has remained sensitive to foreign fund movements, crude oil prices and changes in the international demand for dollars.
Falling crude oil prices have emerged as an important positive factor for the Indian economy. Brent crude, the global oil benchmark, was trading at $93.64 per barrel in futures trade, down 1.04% on Thursday. This followed a sharp decline of more than 8% in the previous session, taking prices below the $100-per-barrel level.
The sell-off came amid growing expectations that the political developments following the US midterm elections could encourage diplomatic efforts to ease the conflict involving the United States, Israel and Iran.
Market participants are also assessing whether the Democrats’ control of both chambers of Congress could place greater constraints on President Donald Trump’s military and foreign policy decisions, potentially encouraging negotiations.
The easing of geopolitical concerns has reduced some of the risk premium previously built into crude oil prices. Brent crude had approached $120 per barrel in late October, raising concerns about energy supplies and the financial pressure on oil-importing economies.
For India, the decline is particularly significant because the country imports nearly 90% of its crude oil requirements. Lower international prices could reduce the import bill, ease inflationary pressures and help contain the current account deficit. A sustained fall in crude prices could also reduce pressure on the rupee by lowering the demand for dollars from oil importers.
The domestic equity market offered some encouragement to the rupee on Thursday. The Sensex jumped 1,403.71 points to 78,689.87 in early trade, while the Nifty 50 advanced 378.85 points to 24,340.40.
The rally was supported by positive global cues, easing crude prices and renewed foreign investor participation. Banking, automobile, financial services and other interest-rate-sensitive stocks witnessed strong buying.
Foreign institutional investors (FIIs) remained net buyers of Indian equities on Wednesday, purchasing shares worth ₹7,284.03 crore, according to provisional exchange data.
Foreign investment inflows can support the rupee by increasing the supply of dollars in the domestic market. However, continued demand from importers and other market participants can offset some of the benefits.
The rupee‘s direction in the coming sessions will largely depend on crude oil prices, the movement of the US dollar and foreign investment flows. Developments in West Asia will also remain important, particularly any progress towards reducing military tensions and restoring stability to energy supply routes.
The Reserve Bank of India’s currency management measures and domestic demand for dollars will be other factors watched by forex traders.
Although Thursday’s early decline interrupted the rupee’s recent recovery, the broader environment has become somewhat more favourable with oil prices cooling and foreign investors returning to Indian markets.