Rupee Closes Weaker Against US Dollar Amid FPI Outflow From Domestic Equity

The Indian rupee closed weaker on Thursday, due to the relentless surge in demand for the US dollar amid rising geopolitical tensions in the Middle East and a slowdown in the country's manufacturing activities in September.

Foreign institutional investors, concerned by these developments, withdrew Rs 5,579 crore from Indian markets, exacerbating the rupee’s downtrend.

The Indian currency depreciated 15 paise to close at Rs 83.97 against the US dollar. It had closed at Rs 83.82 on Tuesday, according to Bloomberg data. 

The dollar index inched up 0.3% to 101.903, while Brent crude prices advanced sharply by 1.94% to $75.33 per barrel. Oil prices increased for the third consecutive day as traders evaluated supply risks in the Middle East. Israel is anticipated to launch a retaliatory strike against Iran following Tehran's missile attack earlier this week.

"Geopolitical concerns have weighed down investor sentiment this week as conflicts in the Middle East bubble over, and better-than-expected US job data is crimping hopes for follow-up jumbo rate cuts from the Fed," said Anil Kumar Bhansali, head of Treasury and executive director at Finrex Treasury Advisors LLP. 

"The rupee's downside may be limited, as the possibility of US Federal Reserve rate cuts could offer some relief. Fed Chair Jerome Powell has hinted at rate cuts, but the timing remains contingent on the evolving economic landscape," said Amit Pabari, managing director at CR Forex Advisors.

Currently, all eyes are on the RBI, which is expected to continue its interventions to stabilise currency fluctuations. As noted previously, the level of Rs 83.50 is expected to serve as strong support, and with likely RBI intervention, the rupee has rebounded from this level to reach Rs 83.90, he added.

Pabari expects Rs 83.95 to act as significant resistance points, and the rupee is likely to trade within the range of Rs 83.50-84.05 against the dollar in the short term.