Rupee recovers 6 paise, hovers near all-time low at 85.07 against the US dollar

The rupee saw a modest recovery on December 20, appreciating by 6 paise to open at Rs 85.07 against the US dollar in early trade. This comes after the rupee hit an all-time low of Rs 85.13 on Thursday, when it depreciated by 19 paise. By mid-session, the rupee was trading at Rs 85.10, slightly above its historic low, as forex markets grapple with global and domestic pressures.

Global factors weigh on the rupee
Forex traders noted that the rupee’s trajectory remains under pressure due to sustained dollar demand and a strong Dollar Index (DXY), which was trading at 108.43, up by 0.03 per cent. Additionally, the Federal Reserve’s cautious stance on rate cuts in 2025, reducing expectations from four to two cuts, has elevated the dollar’s strength, impacting emerging market currencies.

Domestic challenges amplify weakness
On the domestic front, limited intervention from the Reserve Bank of India (RBI) and tightening liquidity in the banking system are compounding challenges for the rupee. According to Amit Pabari, MD of CR Forex Advisors, the USDINR pair is expected to consolidate within the range of Rs 84.70 to Rs 85.20 in the near term.

Equities and crude oil in focus
The rupee’s recovery coincides with a correction in Indian equities, as the BSE Sensex dropped 145.13 points, or 0.18 percent, to trade at 79,072.92, while the NSE Nifty fell 17.40 points to 23,934.30. Meanwhile, Brent crude prices declined by 0.62 per cent to USD 72.43 per barrel in futures trade, offering a silver lining for India’s import bill.

FII outflows add to rupee’s woes
Foreign Institutional Investors (FIIs) were net sellers in the Indian capital markets on Thursday, offloading shares worth Rs 4,224.92 crore. Persistent FII outflows are adding to the rupee’s downward momentum, making its recovery path challenging in the short term.

While the rupee’s marginal rebound offers a respite, sustained headwinds from global and local factors suggest a cautious outlook for the currency in the near term.