Rupee Ends At One-Month Low Against US Dollar

The Indian rupee fell by 37 paise to close at 86.01 against the US dollar on Thursday, marking its lowest level since April 11. The rupee had closed at 85.64 per dollar on Wednesday.

Amit Pabari, managing director of CR Forex Advisors, attributed the rupee's decline to several factors. "The narrowing yield differential between India and the US is making Indian assets less attractive, prompting foreign institutional investors to pull out money from Indian markets. This outflow is putting additional pressure on the rupee," he explained.

Rising geopolitical tensions in the Middle East have also contributed to the rupee's depreciation. "Higher crude oil prices, driven by these tensions, are further adding pressure to the rupee," Pabari noted.

Additionally, surging US bond yields are unsettling global investors. "With 20-year yields spiking to 5.131% and 10-year yields climbing to 4.607% — both multi-month highs — there are growing fears that the US tax and spending bill could add over $5 trillion to the deficit by 2034," Pabari said.

US-China tensions have also resurfaced, exacerbating risk aversion globally. "Following Washington’s crackdown on Huawei’s access to AI chips, US-China tensions have reignited just weeks after a truce. This has renewed pressure on emerging market currencies like the rupee," Pabari added.

However, there are some positive signs for the rupee. "The Chinese Yuan and Japanese Yen have started appreciating against the dollar, offering a measure of support to the rupee. Moreover, broad-based dollar weakness, with the DXY slipping below 99.50, is expected to act as a tailwind for the rupee in the short term," Pabari concluded.