Indian rupee weakens for third session as importers step up dollar bids, foreign outflows bite

Mumbai witnessed the Indian rupee weakening for the third day in a row on Monday. Importers intensified dollar purchases, while soaring oil prices and foreign outflows added pressure to the local currency. The rupee commenced the trading day at par with the US dollar but ended the session at 95.1850, marking a 0.3% decline. Over the last three sessions, the Indian rupee has depreciated by approximately 0.8%.

Brent crude prices surged for the third consecutive week last week and continued their upward trend, reaching around $115 per barrel on Monday. Rising oil prices could exacerbate India's import bill, intensify inflationary pressures, and undermine the rupee's sentiment. Moreover, they might prompt companies to bolster currency hedges and make foreign investors more reluctant to invest in Indian assets.

Vaibhav Shah, head of products, business strategy, and international business at Mirae Asset Mutual Fund, commented, "If the geopolitical conflict persists, there will be pressure on oil prices, currency, and broader earnings recovery." He further noted that global capital is gravitating toward markets directly impacted by the chip and artificial intelligence boom.

Foreign investors had netted out nearly $5 billion worth of Indian equities in October, following similar outflows of $3.75 billion in September, according to depository data. The rupee had drawn support from Reserve Bank of India (RBI) dollar sales and inflows associated with the Jio Platforms Initial Public Offering (IPO) in recent trading sessions. However, the lack of such support on Monday left the rupee more vulnerable to importers' dollar demand, according to traders.

The focus now shifts to the US Federal Reserve's monetary policy decision on Wednesday, where a widely anticipated rate pause is expected, with attention on the trajectory of interest rates.