On Tuesday the Indian Rupee plummeted by 41 paise, or 94.56 (temporary) against the US Dollar as market sentiment deteriorated due to increasing crude oil prices and ongoing foreign capital outflows. The fall indicates an accumulating stress on the domestic currency as there is a concern on global uncertainties and external balance concerns in India.
The rupee began the day at 94.35 at the interbank foreign exchange market but soon started losing to the session. It hit a low of 94.58 intra-day and closed almost at the same point. Forex traders observed that the rupee has already experienced a considerable depreciation in the past few sessions taking into consideration the anticipations of a greater current account deficit (CAD) and fluctuating capital flows.
The currency has continued to be put under pressure by the relentless selling by foreign institutional investors (FIIs) with an excess of over $19 billion being reportedly pulled out of Indian equities already this year. This has kept the demand on rupee down, which has led to decline in the value of the rupee.
International signals were also contributing to the pressure and the Brent crude prices shot up to over $111 per barrel, raising the import bill of India and further burdening the currency. In the meantime, the dollar index was on the rise which points to a stronger US currency as compared to the leading currencies in the world.
Equity markets also closed down on the domestic front, the Sensex and Nifty registering losses. Analysts feel that the direction of the rupee over the coming years will be determined by the world oil prices, capital flows and events of geopolitics, which still affects investor confidence.