Key points
The rupee traded at 84.07 to the U.S. dollar by mid-morning on Friday, staying near its record low of 84.0750, which it hit earlier in the week.
The currency has struggled despite strength in other Asian currencies like the Philippine peso, which gained 0.3%.
Local outflows from the Indian equity markets, driven by foreign portfolio investors, have kept the rupee under pressure.
See also: Indian Rupee Hits Record Low Amid Dollar Demand
This month alone, foreign investors have sold $8.4 billion in local stocks, on track to be the largest outflows since at least 2002.
As a result, the BSE Sensex and Nifty 50 indices were both down 0.5%, extending their losing streak to a fourth consecutive session.
See: USD/INR is consolidating around 84.18 with low momentum after peaking at 84.265 on the VT Markets app.
Dollar bids from foreign banks, related to custodial outflows, alongside oil companies’ demand for dollars, are key factors contributing to the rupee’s weakness.
However, traders pointed out that mild dollar sales from state-run banks, likely under the Reserve Bank of India’s guidance, helped limit the rupee’s fall below its all-time low.
Meanwhile, U.S. retail sales data released on Thursday surpassed expectations, showing a 0.4% increase compared to the forecasted 0.3%.
Jobless claims also dropped, supporting the view that the Federal Reserve may only cut rates by 25 basis points in November rather than a more aggressive 50 bps.
This stronger-than-expected data lifted the U.S. dollar to an 11-week high of 103.87, while U.S. bond yields also rose, reinforcing demand for the greenback.
The dollar’s recovery, however, may not have much room to run.
The dollar index’s strength appears overstretched and with U.S. bond yields stalling near 4%, the index could fall back to around 102. Should this scenario unfold, it could offer some relief to the rupee.
The near-term outlook for the rupee remains cautious, with continued pressure from equity outflows and the stronger dollar.
If foreign selling of Indian equities persists, we could see the rupee test or even break below its record low, unless the RBI steps in with further intervention.
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