Mumbai, Aug 28: The Indian rupee weakened by 10 paise to 95.55 against the US dollar in early trade on Friday, as foreign investor outflows and concerns over global crude oil supplies kept pressure on the domestic currency.
The rupee opened at 95.54 against the dollar at the interbank foreign exchange market before moving down to 95.55. Traders said the currency remained sensitive to movements in crude oil prices, overseas fund flows and developments in global markets.
A softer US dollar and a decline in international crude prices below $90 a barrel provided some support to the rupee and helped limit further losses.
The rupee had ended Thursday at 95.45 against the US dollar, registering a marginal decline of one paisa.
Crude oil prices remain an important factor for the Indian currency because the country imports a large share of its energy requirements. Higher oil prices can increase India’s import bill and raise demand for dollars, which can put additional pressure on the rupee. A sustained decline in crude prices could have the opposite effect by reducing the cost of energy imports.
Foreign investment flows are also being closely watched by currency traders. Selling by overseas investors can increase demand for the dollar as funds are moved out of Indian assets, while renewed foreign buying can provide support to the rupee.
Global monetary policy is another major factor influencing market sentiment. Investors are awaiting US Federal Reserve Chair Kevin Warsh’s remarks at the Jackson Hole Symposium, with particular attention on any indication about the future direction of US interest rates.
Market participants believe that signals pointing towards higher US interest rates could strengthen the dollar and create additional pressure on emerging-market currencies. Conversely, expectations of a more accommodative policy could improve sentiment towards emerging markets, including India.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, said the rupee could trade within a range of 95.40 to 95.60. He noted that buying from oil importers and month-end demand could support the currency, while the Reserve Bank of India is expected to remain watchful of sharp movements.
The rupee’s performance has wider implications for the Indian economy. A weaker rupee can raise the domestic cost of imported crude, machinery and other goods, potentially increasing costs for businesses and consumers. At the same time, exporters can benefit when overseas earnings translate into a higher rupee value.
For the currency market, the immediate focus remains on crude oil prices, foreign fund flows, movements in the US dollar and signals from the Federal Reserve. These factors are likely to determine the direction of the rupee in the near term.