New Delhi: The Indian rupee ended lower on Monday (April 29), its worst intraday fall in more than two weeks, due to month-end dollar demand from importers. Weakness in major Asian currencies also hurt the local currency, Reuters reported.
The rupee closed at 83.47 against the US dollar, down 0.16% from its close at 83.34 in the previous session.
This possibly reflects an uptick in the need for foreign currency (in this case, dollars) to pay for imported goods and services. It could be due to various factors such as increased demand for raw materials, machinery, or consumer goods from international markets.
India relies on dollar-denominated imports for over 85% of its crude oil requirements and imports more goods than it exports. Therefore, India’s import bill usually shoots up when the dollar strengthens, increasing the local demand for dollars.
A strong dollar and Asian currencies
Asian currencies were mostly down between 0.1% and 0.3%. The dollar index slipped 0.3% to 105.6, after the Japanese yen recovered from a 34-year low hit earlier on Monday, with traders citing yen-buying intervention by Japanese authorities to support the currency, Reuters said.
“Strong dollar demand has been there since [Monday] morning,” but the yen’s move higher helped the rupee avert further weakness, an FX trader at a private bank told the news agency. Most Asian currencies pared losses after the yen rebounded.
In the near term, the rupee is likely to trade in the 83.25-83.75 range, with the magnitude of debt and equity inflows being a key driver of currency, Mandar Pitale, head of treasury at SBM Bank India, told the news agency.
According to stock depository data, foreign investors withdrew $1.57 billion from Indian equities and debt on a net basis after having been net buyers in February and March.
The delayed expectations regarding the timing of the US Federal Reserve’s policy rate easing have had a dampening effect on emerging market assets. Currently, investors are factoring in only one rate cut in 2024, as per CME’s FedWatch tool.
Although the Fed is widely anticipated to maintain interest rates at their current levels during its April 30-May 1 meeting, investors will closely monitor Chair Powell’s remarks for insights into policymakers’ perspectives on the future interest rate trajectory, it added.
Heavy reliance on imports
When a country relies heavily on imports, there is a greater demand for foreign currency, such as the US dollar, to pay for those imports. This increased demand for foreign currency can put downward pressure on the value of the domestic currency, in this case, the rupee.
According to PTI, the dependency on overseas suppliers of crude oil rose to a new high in the fiscal year 2024, according to the Petroleum Planning and Analysis Cell (PPAC). However, the import bill has fallen due to lower international rates of the product.
However, the change in the value of rupee also depends on other macroeconomic factors.
