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The Indian rupee is trading near its record low against the US dollar as foreign investor outflows and a strong dollar create downward pressure.
What does this mean?
The rupee opened at around 84.40 against the dollar in non-deliverable forward markets, echoing a previous low of 84.4125. This downturn is mainly due to foreign investors pulling out significant funds, with outflows exceeding $3 billion in November and $11.5 billion in October. The pressure continues with the one-month forward rate at 84.51 and onshore forward premiums at 11 paisa. Economic influences like a climbing US dollar index, now slightly reduced to 106.63, and rising Brent crude prices, up to $71.3 per barrel, add to the stress. Market experts predict central bank actions to check the rupee's fall past 84.50. Furthermore, Fed Chair Jerome Powell's remarks on interest rates hint at a slowdown in 'Trump-era' dollar purchases, yet the rupee stays vulnerable due to high US bond yields affecting Asian currencies.
Significant foreign sales and a robust US dollar are devaluing the rupee, creating risks for Indian markets. November 13 alone recorded $160.2 million in stock outflows and $15 million in bonds. Investors should prepare for continued volatility as these elements unfold.
The bigger picture: Central banks stand ready.
With political changes boosting US assets and weakening Asian currencies, state-run banking experts expect central banks to intervene to stabilize the rupee. This action might reduce some risks, but global investors remain cautious amid uncertainties.