Rupee Closed Weaker Against The US Dollar

The rupee weakened by five paise to close at 85.83 against the US dollar. It closed at 85.78 on Friday. The Indian rupee had declined to a fresh low against the US dollar during the day on Monday, as the demand for the greenback persisted. The Indian unit had declined by 4 paise to a record low of 85.82 a dollar within one hour of the session.

The currency had opened at Rs 85.77 against the greenback, according to Bloomberg. It had closed at Rs 85.78 on Friday.

"Reserve Bank of India has been vehemently protecting 85.80 for the moment, and despite a weakness in yuan, has not allowed the rupee to go past this level, though eventually it may have to," according to Anil Kumar Bhansali, head of treasury and executive director of Finrex Treasury Advisors LLP.

While the RBI's actions may offer some short-term stability, the rupee's outlook remains clouded by a mix of domestic and global challenges. Amit Pabari, managing director of CR Forex Advisors, concurs.

Increased demand for the dollar in the non-deliverable forward market has widened the arbitrage gap between offshore and onshore markets, putting additional strain on the rupee, Pabari said.

Slower economic growth and a widening trade deficit have further dampened investor sentiment, while ongoing capital outflows, exceeding $1 billion in the first week of 2025, have intensified the currency's struggles, Pabari noted.

There is reason for cautious optimism, particularly with the upcoming Union Budget for 2025. The budget could play a pivotal role in shaping India's economic trajectory amid concerns about slowing GDP growth and rising inflation, he said.

Dollar Index And Crude Oil

"The dollar held at nearly 2 years high at 108.88 while CNH gained slightly to 7.3513 after PBOC had aggressively defended the key levels of 7.30 for CNY. The investors were looking to NFPR data on Friday as a slew of Fed policymakers will speak during the week and the dollar continues to draw strength from fewer Fed cuts in 2025 with its two-year high climb," according to Bhansali.

Brent oil prices hit over a two-month high in Asian trade this morning at $76.70 per barrel as traders looked to improving demand from China, though dollar strength did not allow any further strength.

It is two weeks of straight gains for crude prices as Beijing prepared to unveil more stimulus measures to improve falling economic growth. Colder weather in the West is also expected to bolster oil demand, according to Bhansali.