Rupee Opens at Nearly 2-Month Low Amid Trade Tensions, FII Outflows, and Fed Cues

Today is the rupee's weakest opening in almost two months as the Indian currency kicked off the trading week on the back foot. The domestic currency settled 41 paise lower at ₹85.65 against the US dollar as compared with its previous closing of ₹85.24 on the last trading day Friday. This is the rupees largest opening loss since Feb 10, 2023.

It seems to be mainly driven by increasing concerns about global trade friction, keeping a downward pressure on the rupee. The escalation is in retaliation for US President Donald Trump's tariffs under the pretext of tariffs on Chinese goods. The market seems to have jumpy of the risk aversion as the U.S. goods that could be subjected to a 34 percent tariff on all U.S. imports in retaliation by China.

A steady decline in prices of crude oil, an important factor that supports the rupee, accompanied this negativity but was unable to provide the rupee with enough support due to the negativity surrounding trades. A foreign institutional investor (FII) outflow of ₹3,483.98 crore from Indian equities added to the headwinds facing the domestic currency. Such outflows usually put pressure on the rupee as they mean reduced dollar inflows.

In addition, the US Federal Reserve has also sent out signals that have weakened the rupee. A hawkish tone from the key Federal Reserve officials, indicating a sense of urgency to change their monetary policy was missing, cast a "wider shadow on emerging market currencies," said Amit Pabari, managing director at CR Forex Advisors. According to Pabari "The dollar index strengthened as the US Federal Reserve indicated that there is no rush to pivot... Such tones supported U.S. dollar index (DXY) which lowered rupee sentiment.

Sentiment among traders regarding the dollar on a day indicates that there is a buying interest visible on dips, market analysts expect the rupee to trade in the range of ₹85.50 to ₹86.00 on a day. Pabari predicts a possible immediate corrective bounce-up towards the ₹86.00–₹86.20 region, but marks ₹85.00 as a strong support on the downside.

On top of that, the Reserve Bank of India's (RBI's) Monetary Policy Committee (MPC) meeting starts today, further adding interest to investors. This meeting outcome will closely be monitored for cues on Central bank's outlook on monetary policy and its possible impact on rupee.

On a larger scale, the Indian rupee has fallen 0.3% thus far in April, in contrast with a gain of 2.3% the previous month. This volatility highlights the sensitivity of rupee to global macroeconomic factors and to investor sentiment. In the near term, that is likely to drive the direction of the Indian currency via a combination of trade tensions, capital flows and central bank policies.

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