Rupee lags Asian peers despite dollar dip as FPIs pull out and oil rises

Business Standard

9 hours ago

Despite a broad-based weakening of the US dollar, the Indian rupee has underperformed its Asian peers and remained one of the worst-performing currencies in the region. The weakness in the local currency is primarily attributed to persistent foreign portfolio investor (FPI) outflows from debt, muted equity market activity, and lacklustre foreign direct investment (FDI) inflows in recent months.
'Despite broader dollar weakness globally, this trend has not reflected in the USD/INR pair,' said V R C Reddy, head of treasury at Karur Vysya Bank. 'Over the past month, the rupee has largely hovered around the 85.50 mark. While most other Asian currencies have gained modestly—between 1 and 2 per cent—during this period, the rupee has remained under pressure. The sustained FPI outflows from the debt segment, coupled with subdued equity market participation in June and weak FDI inflows in recent months, have added to the rupee's woes,' he added.
In June so far, foreign investors have net sold ₹5,402 crore worth of domestic equities and ₹13,848 crore of debt.
The rupee has depreciated by approximately 0.6 per cent in June, placing it among the poorest-performing Asian currencies for the month. In the calendar year to date, the domestic currency has depreciated by 0.5 per cent against the greenback, while in the current financial year it has weakened by 0.7 per cent.
On Friday, the rupee depreciated sharply to settle below the 86-per-dollar mark—a two-month low since April 9—on the back of a surge in crude oil prices driven by escalating tensions in West Asia.
'The Indian rupee has witnessed a significant depreciation against the US dollar and is among the worst-performing currencies in Asia,' said Dilip Parmar, senior research analyst, HDFC Securities. 'This sharp fall can be attributed to heavy foreign fund withdrawals, an overall risk-off sentiment in the markets, soaring global crude prices, and the US dollar's renewed strength as a safe-haven currency following Israel's military action against Iran,' he added.
Meanwhile, the Dollar Index has seen a pronounced decline. As of June 15, it had fallen nearly 10 per cent since the beginning of the year, touching its lowest level in more than three years. On June 12, the index hit an intraday low of 97.61—its weakest level since 2022.
It settled at 98.31 on Friday. The index measures the strength of the greenback against a basket of six major currencies. The decline in the dollar is largely driven by concerns over the US economic outlook, uncertainties around trade policy, and growing expectations of interest rate cuts by the Federal Reserve. Market analysts suggest that the greenback could face continued downward pressure in the coming months.