Indian Rupee Gains 3 Paise to 89.95 Against US Dollar on Strong Industrial Data
The Indian rupee gained 3 paise to 89.95 against the US dollar in early Tuesday trade, driven by robust Index of Industrial Production data that showed a 25-month high growth of 6.7% for November, significantly exceeding expectations of 2.5%. Despite this positive momentum, the currency's gains were capped by foreign institutional investor outflows worth ₹2,759.89 crore, marginally higher crude oil prices, and weak domestic equity market opening with Sensex and Nifty both declining in early trade.
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The Indian rupee strengthened 3 paise to 89.95 against the US dollar in early trade on Tuesday, supported by a weaker greenback and robust Index of Industrial Production (IIP) data. The currency opened at 89.98 at the interbank foreign exchange before rising to its session high of 89.95, recovering from Monday's close of 89.98 when it had depreciated 8 paise.
Strong Industrial Production Data Drives Currency Gains
The rupee's strength was primarily attributed to exceptional IIP data released on Monday, which showed significant improvement across key metrics. According to Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, the IIP numbers provided substantial support to the local currency.
| IIP Metrics: | November 2024 | Expectation | Previous Month |
|---|---|---|---|
| Monthly Growth: | 6.70% | 2.50% | 0.50% |
| Annual Growth: | 3.30% | - | 2.70% |
| Significance: | 25-month high | - | - |
The November IIP growth of 6.7% represented a 25-month high, substantially exceeding market expectations of 2.5% and showing marked improvement from the previous month's growth of 0.5%. The annual growth also improved to 3.30% from the previous 2.70%.
Market Pressures Limit Currency Gains
Despite positive economic data, several factors capped the rupee's upward momentum. Foreign institutional investors continued their selling pressure, offloading equities worth ₹2,759.89 crore on Monday according to exchange data. Bhansali noted that the Reserve Bank of India protected the upper levels while foreign portfolio investors who sold equities also became dollar buyers, maintaining pressure throughout the trading session and taking the currency almost to 90 levels.
| Market Indicators: | Current Level | Change |
|---|---|---|
| Dollar Index: | 98.01 | -0.03% |
| Brent Crude: | USD 61.96/barrel | +0.03% |
| Sensex: | 84,486.22 | -209.32 points |
| Nifty: | 25,878.85 | -63.25 points |
Global Market Dynamics and Trading Conditions
The dollar index, which measures the greenback's strength against six major currencies, traded marginally lower by 0.03% at 98.01, providing some relief for emerging market currencies including the rupee. However, Brent crude oil prices edged higher by 0.03% to USD 61.96 per barrel in futures trade, amid thin year-end trading volumes and ongoing concerns about global demand.
Domestic equity markets opened on a weak note, with the benchmark Sensex declining 209.32 points to 84,486.22 and the Nifty falling 63.25 points to 25,878.85 in early trade. The combination of FII outflows, marginally higher crude oil prices, and weaker domestic equity market opening created headwinds for the rupee despite the strong industrial production data.
Currency Outlook and RBI Intervention
Forex traders indicated that while robust economic fundamentals provided support to the rupee, the currency faced resistance from multiple factors including foreign investment outflows and higher crude oil prices. The RBI's active intervention to manage currency volatility, particularly around the 90 level against the dollar, remained a crucial factor in determining the rupee's trading range and preventing sharp fluctuations during the year-end trading period.
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