Rupee recovers marginally, ends 4 paise higher at 85.87 against the US dollar

The rupee witnessed a slight recovery on Thursday, gaining 4 paise to settle at 85.87 against the US dollar, rebounding from its record low of 85.91 recorded a day earlier.

Market drivers and key pressures

Forex analysts highlighted persistent selling in domestic equities and ongoing foreign capital outflows as major factors keeping the rupee under pressure. Additionally, the dollar's strength, buoyed by improved US macroeconomic prospects and uncertainties surrounding trade restrictions ahead of the US administration's transition, contributed to the rupee's challenges.

The rupee opened at its record low of 85.94 and moved to an intra-day high of 85.84 before closing at 85.87. Elevated crude oil prices and rising US treasury yields also weighed on the local currency.

Analyst insights

Anuj Choudhary, a research analyst at Mirae Asset Sharekhan, stated, “The surge in US bond yields and FII outflows have pressured the rupee. Mixed US macroeconomic data, including favourable weekly unemployment claims but disappointing non-farm employment figures, also influenced currency movement.”

Choudhary predicts the rupee could trade with a negative bias in the near term, given weak domestic markets, elevated US treasury yields, and rising crude oil prices. He anticipates USD-INR spot prices to remain in a range of Rs 85.75 to Rs 86.10, with potential RBI interventions offering support at lower levels.

Global and domestic factors

The dollar index, which tracks the US dollar against a basket of six currencies, rose 0.05 per cent to 108.98. US 10-year bond yields stood firm at 4.67 per cent, while Brent crude marginally fell by 0.03 per cent to USD 76.14 per barrel.

On the equity front, the domestic markets continued their downward trend, with the Sensex losing 528.28 points to close at 77,620.21 and the Nifty dropping 162.45 points to 23,526.50. Foreign institutional investors (FIIs) sold equities worth Rs 3,362.18 crore on Wednesday, according to exchange data.