4 reasons why rupee declined to a new low despite a weak dollar

The Indian rupee on Tuesday slumped to a historic low of 84.13 against the US dollar in the early trade, leaving importers as well as investors worrying.

On Tuesday (November 5), the INR started at 84.13 against the greenback in the interbank foreign exchange market, a decline of 2 per cent from Monday’s close.

Rupee falling despite weaker dollar

The rupee has been falling despite a weaker dollar, which was down due to disappointing US economic data.

Reasons for fall in rupee

The decline in the Indian rupee against the dollar has been attributed to a combination of factors by analysts. Let us look at the reasons for the fall in INR.

1 - Rising crude oil price

The rising crude oil price is also weighing on the Indian rupee.

Brent crude, the global oil benchmark, rose 0.19 per cent to $75.22 per barrel in futures trade.

Rise in oil prices leads to rupee depreciation as higher import bill increases demand for dollar

Meanwhile, market analysts believe that ongoing geopolitical tensions, including escalation of West Asia tensions, have led to delays in an increase in OPEC+ oil production, which has resulted in shooting up of oil prices.

2 - Foreign capital outflow

The past few days have been witnessing persistent foreign fund outflows.

As per exchange data on Monday, Foreign institutional investors (FIIs) were net sellers in the capital markets offloading shares worth Rs 4,329.79 crore.

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Meanwhile, domestic institutional investors (DIIs) bought shares totaling Rs 2,936.08 crore.

FIIs are pulling out money from India to invest in China where the country is providing lucrative offers to investors as it has been trying to use all possible methods to revive its economy.

The FIIs pulling out is impacting the appeal of the domestic market which was already dealing with difficulties following the weak corporate earnings and elevated valuations.

3 - US Presidential election

A report by PTI quoted forex traders as saying that all eyes are on the 2024 US Presidential election on November 5 in which Republican candidate Donald Trump and Democrat’s Kamala Harris are in a neck and neck fight.

Analysts say that the rupee is expected to witness volatility with the US election results due by the evening of November 6.

4 - Volatility in Indian stock market

There is volatility in the Indian stock market due to the US Presidential election.

Considering the ongoing state of the equity market, analysts believe that India has been underperforming compared to its global peers due to excess valuation.

The Indian benchmark indices – BSE Sensex and Nifty 50 – declined roughly 8 per cent from their peak values reached in late September.

According to a report by The Mint, the overall market capitalisation of BSE-listed firms on Monday (November 4) dropped to nearly Rs 442 lakh crore from Rs 448 lakh crore in the previous session, making investors poorer by about Rs 6 lakh crore in a single session.

Is RBI selling dollars to support fall in rupee?

A report by Reuters quoted four traders as saying that the Reserve Bank of India, or RBI, is selling dollars to support the rupee after the currency declined to an all-time low.

Traders quoted in the report said that state-run banks were spotted offering dollars near the 84.1125-84.1150 rupee levels, most likely on behalf of RBI.

With inputs from agencies.