Rupee Volatility Surges Amid FPI Outflows and U.S. Trade Uncertainty

The Indian rupee experienced sharp swings in early Wednesday trade, reflecting the tug-of-war between easing crude oil prices and ongoing uncertainty over the India-U.S. trade deal, coupled with sustained foreign fund outflows.

At the interbank foreign exchange market, the rupee opened at ₹91.05 per U.S. dollar, down 12 paise from Tuesday’s close, but quickly recovered to touch an early high of ₹89.96. By 9:46 a.m., it was trading around ₹90.18, showing heightened intraday volatility. On Tuesday, the rupee had dipped below 91, hitting ₹91.14, before settling at ₹90.93.

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Foreign Fund Outflows Remain a Key Pressure

Forex experts point to continued selling by Foreign Portfolio Investors (FPIs) as the dominant factor behind the rupee’s weakness this month. Analysts note that foreign investors have offloaded billions of dollars of Indian equities and debt on a daily basis over the last few months, with the intensity increasing over the past two months.

Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, said, “With no concrete progress on the India-U.S. trade deal, the rupee may gradually weaken toward ₹92 in the coming days, adding pressure on equity markets.”

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Crude Oil Eases Pressure

The rupee received temporary support from Brent crude prices, which hovered near multi-year lows of $59 per barrel in futures trade. Analysts attributed the slump to record non-OPEC supply, weak Chinese demand data, and optimism over a potential Ukraine ceasefire.

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Government Perspective

Minister of State for Finance Pankaj Chaudhary highlighted in Parliament that the rupee’s depreciation this fiscal year has been influenced by a widening trade deficit and uncertainties around the India-U.S. trade agreement, along with relatively weak capital inflows.

He noted, “Currency depreciation may enhance export competitiveness, benefiting the economy, but could also push up prices of imported goods. The overall impact on domestic prices will depend on how international commodity costs pass through to the local market.”

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Domestic Market Snapshot

The equity market showed mixed signals amid currency volatility:

• Sensex: up 146.09 points at 84,825.95

• Nifty 50: up 62.05 points at 25,922.15

However, Foreign Institutional Investors (FIIs) were net sellers on Tuesday, offloading equities worth ₹2,381.92 crore, highlighting continued cautious sentiment.