The Indian rupee slipped below the ₹96-per-dollar mark in early trading on Thursday, September 17, reaching its weakest level in more than two months as global uncertainty, elevated crude oil prices and a stronger U.S. dollar weighed on market sentiment.
The currency opened at ₹95.88 and fell to ₹96.10 against the U.S. dollar, marking a decline of 19 paise from the previous close. It was the first time since July 24 that the rupee breached the ₹96 level.
Rupee Recovers From Early Low
After the initial decline, the rupee pared its losses and briefly traded at ₹95.81, up 10 paise from Wednesday's closing level of ₹95.91.
Market participants attributed the recovery partly to suspected intervention by the Reserve Bank of India. Reuters reported that traders observed state-run banks selling dollars, which they believed was likely being done on behalf of the RBI.
The rupee had already declined for seven consecutive sessions through Wednesday. It had lost 148 paise, or more than 1.4%, over the previous six sessions from its September 4 closing level of ₹94.43.
Crude Oil and US Fed Decision Add Pressure
Elevated crude oil prices remained a major concern for the domestic currency. Brent crude was trading around $105.55 per barrel in early trade, despite easing slightly from the previous session.
The U.S. Federal Reserve's 25-basis-point rate increase also supported the dollar and added pressure on emerging-market currencies. The move was the Fed's first rate hike in three years, according to the PTI report.
The dollar index was trading 0.10% higher at 100.07, reflecting continued strength in the U.S. currency.
Foreign Fund Outflows Add to Market Pressure
Foreign institutional investors also remained cautious. Exchange data showed that FIIs sold Indian equities worth ₹2,032.61 crore on a net basis on Wednesday.
Domestic equity markets nevertheless opened higher, with the Sensex gaining 183.42 points and the Nifty advancing 71.45 points in the initial session.
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Outlook for the Rupee
Forex analysts expect volatility to remain elevated while crude oil prices stay high and the U.S. dollar remains firm. The rupee's movement will also depend on global interest-rate expectations, foreign capital flows and developments in international markets.
By the end of Thursday's trading session, Reuters reported that the rupee had closed almost unchanged at ₹95.93 per dollar after recovering from its early breach of the ₹96 level.
Conclusion
The rupee's early move below ₹96 per dollar highlighted the pressure created by high oil prices, a stronger U.S. dollar and tighter U.S. monetary policy. Suspected RBI intervention and market inflows later helped the currency recover most of its early losses.