December 31st 2024.
The rupee continued to struggle against the US dollar on Tuesday, closing at a fresh record low of 85.65. This marked a 3% loss for the year, due to significant foreign fund outflows and the strength of the dollar in global markets. Forex traders noted that the rupee has been facing ongoing pressure, as the Federal Reserve remains cautious about rate cuts and the "Trump factor" drives up the dollar index and US 10-year bond yields. The rupee's depreciation has also been fueled by slowing domestic growth, a widening trade deficit, and continued foreign fund outflows.
Starting the day at 85.54, the rupee dropped to its lowest level of 85.66 against the dollar during intra-day trade. Ultimately, it ended the session at 85.65, down by 13 paise from its previous close. This followed a 4 paise drop on Monday, bringing the total depreciation against the greenback to almost 3% since December 29, 2023, when the rupee was valued at 83.16.
The rupee has faced several major milestones in its downward trend, including breaking the crucial 84-level on October 10 and surpassing the 85-a-dollar mark on December 19. On December 27, it even hit a lifetime low of 85.80, experiencing its steepest single-day fall in nearly two years.
According to Anuj Choudhary, a Research Analyst at Mirae Asset Sharekhan, the rupee is expected to continue trading with a negative bias due to elevated crude oil prices, overall strength of the US dollar, and month-end dollar demand from importers. The selling pressure from foreign funds has also added strain to the currency, with a net outflow of Rs 1,893.16 crore on Monday alone.
In 2024, foreign investors significantly reduced their investments in Indian equities, with net inflows of just over Rs 5,000 crore. This is a significant decrease from the Rs 1.71 lakh crore net investment made in 2023, as investors became more cautious due to high domestic valuations and geopolitical uncertainties.
However, Choudhary also noted that intervention by the Reserve Bank of India (RBI) may help support the rupee at lower levels. He also expects trading volumes to remain thin due to the New Year holiday, predicting that the USD/INR spot price will likely range between 85.40 to 85.85.
In other economic news, India's external debt increased to USD 711.8 billion as of September 2024, a 4.3% rise from June of that year. This data was released by the Finance Ministry, which also reported that at the end of September 2023, external debt was at USD 637.1 billion.
Meanwhile, the dollar index, which measures the strength of the US dollar against six other currencies, was trading lower at 108.01. In the oil market, Brent crude, the global benchmark, saw a 0.57% increase to USD 74.41 per barrel in futures trade.
On the domestic equity market, the Sensex, India's 30-share benchmark index, closed 109.12 points lower at 78,139.01 points, a decrease of 0.14%. The Nifty, another important index, settled on a flat note at 23,644.80 points.
In terms of macroeconomics, India's current account deficit (CAD) slightly moderated to USD 11.2 billion, or 1.2% of GDP, in the July-September quarter of 2024-25, according to data from the Reserve Bank. This is a decrease from the second quarter of 2023-24, when the CAD was at USD 11.3 billion, or 1.3% of GDP.
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