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The rupee declined by 10 paise to close at 74.84 against the US dollar on Wednesday amid persistent foreign fund outflows and elevated crude oil prices.
Investors are cautious ahead of the RBI monetary policy to be announced on Thursday, analysts said.
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At the interbank foreign exchange, the rupee opened at 74.70 against the American dollar, and later witnessed an intra-day high of 74.68 and a low of 74.87 against the greenback.
The local unit finally ended the day at 74.84, down 10 paise from the previous close of 74.74.
“Rupee remained fairly subdued ahead of the Reserve Bank of India (RBI) monetary policy but slow depreciation has been seen in the last two days on back of foreign fund outflows from domestic equities and bonds,” said Dilip Parmar, Research Analyst, HDFC Securities.
On the overseas front, dollar bulls remained in control with the greenback rallying from its 100-days moving average while equities managing to recover some lost ground.
“Spot USDINR is likely to consolidate in the range of 74.60 to 75.10 in the next couple of days,” Parmar said.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.14 per cent lower at 95.51.
“The rupee depreciated against the dollar for the second straight day on likely equity-related outflows and importer covering,” said Sriram Iyer, Senior Research Analyst at Reliance Securities.
Additionally, persistent foreign fund outflows from local equities also weighed on the local unit.
FPIs have pulled out a net USD 1 billion (around Rs 7,484 crore) from Indian stocks in six sessions this month.
However, lack of any major factor has kept the local unit in a small trading band from 74.50 to 75.05.
Jateen Trivedi, Senior Research Analyst at LKP Securities said that the rupee traded little weak awaiting cues from RBI policy due on Thursday.
“With higher crude prices looking likely to sustain above USD 85 per barrel for this quarter, the rupee can feel the heat till the time it’s weak below 74.00. Going ahead rupee can be seen in range of 74.60-75.05,” Trivedi said.
According to Emkay Global Financial Services, the markets are waiting for the RBI MPC’s decision on interest rates which comes against the backdrop of Budget 2022-23, inflationary concerns and evolving geo-political situation.
The MPC is scheduled to announce the policy resolution on February 10.
“Although the RBI is expected to maintain the status quo on Thursday, the markets will be keenly watching out for its guidance on inflation and GDP outlook for the next fiscal,” it said.
Further, the tensions between Russia and Ukraine continued to keep markets on the edge although there have been diplomatic efforts between major nations to defuse the tensions.
“We expect markets to remain cautious until a decisive outcome is seen on the diplomatic front in the coming days,” it said.
On the domestic equity market front, the 30-share Sensex ended 657.39 points or 1.14 per cent higher at 58,465.97, while the broader NSE Nifty settled up 197.05 points or 1.14 per cent at 17,463.80.
Global oil benchmark Brent crude futures fell 0.36 per cent to USD 90.45 per barrel.
Foreign institutional investors were net sellers in the capital market on Tuesday as they offloaded shares worth Rs 1,967.89 crore, according to stock exchange data.
