Rupee stays flat at 85.04 against US dollar; higher crude prices and FII outflows weigh

The rupee remained steady at 85.04 against the US dollar in early trade on Monday, as rising dollar demand and foreign fund outflows offset initial recovery attempts. Despite positive cues from domestic equities, a strengthening American currency and elevated crude oil prices exerted downward pressure on the rupee.

At the interbank forex market, the rupee opened marginally stronger at 85.02 but quickly retraced to Friday’s closing level of 85.04. On Friday, the currency had recovered 9 paise from its all-time low.

Global and domestic factors at play

Forex traders highlighted the persistent demand for the dollar amid fears of delayed interest rate cuts by the US Federal Reserve in 2025. The dollar index, which measures the greenback against six major currencies, rose 0.13 per cent to 107.49, reflecting the American currency's strength.

Adding to the rupee’s woes, Brent crude futures climbed 0.47 per cent to USD 73.28 per barrel, driven by geopolitical volatility. The rise in oil prices is likely to further strain India’s import bill and weigh on the domestic currency.

Equities provide some relief

On the brighter side, the domestic equity markets offered some support. The benchmark Sensex surged 543.48 points, or 0.70 per cent, to 78,585.07, while the Nifty gained 186.10 points, or 0.79 per cent, to 23,773.60.

Foreign fund outflows and forex reserves

Foreign Institutional Investors (FIIs) were net sellers on Friday, pulling out Rs 3,597.82 crore from the capital markets. Meanwhile, data from the Reserve Bank of India (RBI) showed a decline in the country’s forex reserves by USD 1.988 billion to USD 652.869 billion for the week ending December 13. This follows a sharper drop of USD 3.235 billion in the previous week, signalling consistent pressure on reserves.

Outlook

Analysts expect the rupee to remain under pressure in the near term, influenced by external factors like the strength of the dollar and crude oil prices. Positive equity market momentum could provide intermittent support, but sustained recovery may require improved FII sentiment and stability in global markets.