Rupee Weakens to 90.44 Against Dollar Amid Sustained Pressure

Early Friday trading today saw the rupee lose ten paise to 90.44 against the U.S. dollar for the third consecutive day and a solid indication that the declines were caused by foreign investment outflows and strength in the U.S. dollar. However, the declines were also muted by declining crude oil prices and a positive outlook on the Indian equity market. The rupee began the day at 90.37 and fell considerably below Thursday’s closing value of 90.34. On Thursday the rupee fell to 90.34 an 11-paise drop.
The rupee has already lost 17 paise (to 90.34) on Wednesday. The cumulative impact of an increasing trade deficit and very little foreign investor confidence has continued to add pressure.

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Strong Dollar Fuels Rupee Pressure

The strong U.S. dollar hit a six-week high after the release of excellent data on the U.S. economy. Initial jobless claims decreased to only 198,000 for the week ending January 10, the only other week in almost two years to see a number that low. This represents the persistence of the Indian rupee and emerging market economies. However, emerging market currencies are feeling the most impact of U.S. dollar strength, particularly as the U.S. dollar continues to be strong.

Hawkish Fed Remarks Add Downside Risks

Federal Reserve officials are taking a hawkish attitude towards inflation and the need for control over it. The Fed will only cut rates after constant advances towards achieving the target of 2%. The positive reports regarding employment continue to create a cautious outlook which is also placing pressure outside the dollar bloc´s foreign currencies. 

Trade and Flow Dynamics

Continued outflows of foreign capital as the world adjusts are trespassing upon the rupee despite stable domestic prices. The lower price of oil will continue to provide relief through lower import costs, but trade deficits are increasing and probably pushing against the limits of reserves.
The positive non-fundamental trends in the equity markets are acting as a temporary buffer against the larger negative economic forces at work. Forex traders that have received mixed signals from the currency markets are in a position to take advantage of this uncertainty in the short term.