Rupee drops 20 paise against dollar on forex outflows, strong greenback

The rupee depreciated 20 paise to close at 75.79 against the US dollar on Thursday as strengthening US dollar and weak domestic equities weighed on investor sentiment.

Forex traders said risk appetite remained weak as the US Federal Reserve projected weak growth for 2020. Moreover, foreign fund outflows also dented market mood.

The rupee opened weak at 75.81 at the interbank forex market but recovered some ground to close at 75.79 against US dollar, down 20 paise over its last close.

It had settled at 75.59 against the US dollar on Wednesday.

"Indian rupee fell tracking a decline in local stocks and broad gains in the dollar after the Fed’s statement on the economy. The cautious statement from Fed members spurred a risk-off mood in global and domestic equity markets," said Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities.

The US Federal Reserve cut its benchmark short-term rate to near zero and said it would keep interest rates low through 2022.

Domestic stocks declined by more than 2 per cent following the Fed commentary on economic growth.

The 30-share BSE Sensex plunged by 708.68 points, or 2.07 per cent, to end at 33,538.37. The broader NSE Nifty tanked 214.15 points, or 2.12 per cent, to close at 9,902.

Foreign institutional investors were net sellers in the capital market as they sold shares worth Rs 919.26 crore on Wednesday, according to provisional exchange data.

Brent crude futures, the global oil benchmark, fell 3.12 per cent to USD 40.43 per barrel.

The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.16 per cent to 96.11.

"Rupee extended losses during intra-day trades on Thursday on likely overseas outflows from local stocks amid a strong greenback after a dovish Federal Reserve policy," Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities said.

Trivedi further added that "global stock markets also witnessed selling pressure which helped dollar buying and USDINR escalated towards 75.89".

According to Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services, market participants will be keeping an eye on inflation and industrial production number.

"The expectation is that the number could disappoint and that could keep the rupee weighed down," he said.

Traders further said rising COVID-19 cases are weighing on the investor concerns. Globally, the number of cases linked to the disease has crossed 73.97 lakh and the death toll has topped 4.17 lakh.

In India, the death toll due to COVID-19 rose to 8,102 and the number of infections rose to 2,86,579, according to the health ministry.

The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 75.4688 and for rupee/euro at 85.7034. The reference rate for rupee/British pound was fixed at 96.2997 and for rupee/100 Japanese yen at 70.26.