The USD/INR pair climbed higher on Wednesday, driven by foreign fund outflows and renewed demand for the US dollar as global investors continued to move away from emerging market assets. The rupee struggled to gain traction amid persistent dollar strength and concerns over India’s external funding environment.
A sharp rise in foreign institutional investor (FII) outflows has put pressure on the rupee, as global investors shift capital toward higher-yielding US assets amid expectations that the Federal Reserve will maintain higher interest rates for longer. With US Treasury yields remaining elevated, the dollar has retained its dominance, pushing USD/INR higher.
Adding to the rupee’s weakness, rising oil prices have raised concerns about India’s trade deficit, as the country remains a major importer of crude. A sustained increase in energy prices could weigh further on India’s current account balance, increasing demand for the US dollar and limiting the rupee’s ability to recover in the near term.
Despite pressure on the rupee, the Reserve Bank of India (RBI) has continued to manage exchange rate volatility, intervening in the forex market to prevent excessive fluctuations. While the RBI has ample foreign exchange reserves to stabilize the currency, traders remain cautious about the possibility of further depreciation if external risks intensify.
The broader market sentiment remains a key factor in USD/INR’s movement, with investors closely watching upcoming US inflation data and Federal Reserve commentary for clues on future rate policy. Any signs that the Fed may delay rate cuts further could provide additional support for the dollar, keeping USD/INR elevated.
For now, USD/INR remains on an upward trajectory, with foreign fund outflows and a resilient US dollar keeping the rupee under pressure. Unless global sentiment shifts in favor of emerging markets or the RBI steps in more aggressively, the pair could continue testing higher levels in the sessions ahead.
