The Indian Rupee weakened to 89.98 against the US dollar on Monday, marking the fifth consecutive session of losses. The currency's decline was primarily driven by persistent foreign fund outflows and increased dollar demand from importers amid thin market liquidity.

Trading Session Performance

During Monday's trading session at the interbank foreign exchange market, the rupee displayed volatility within a narrow range. The currency opened at 89.95 against the dollar and experienced intraday fluctuations before settling at the day's closing level.

Market Factors and Sentiment

Forex traders identified several key factors contributing to the rupee's decline:

• Continued foreign fund outflows
• Heightened dollar demand from importers
• Negative trend in domestic equities

These factors combined to create a challenging environment for the local currency.

Dilip Parmar, research analyst at HDFC Securities, highlighted the broader market dynamics affecting the rupee's performance. He noted that the persistent decline was intensified by typical month-end demand from importers and corporates seeking dollars in a thin liquidity market. The current trend reflects broader cautiousness as market participants recalibrate their portfolios for the new year.

Analyst Outlook and Key Levels

Market analysts provided technical and fundamental perspectives on the rupee's near-term trajectory. Anuj Choudhary, research analyst at Mirae Asset ShareKhan, emphasized upcoming US economic data releases that traders should monitor closely.

Choudhary noted that traders should watch for Federal Open Market Committee minutes and core Personal Consumption Expenditures price index data from the US this week, as these releases could influence the currency pair's direction.

Technical Analysis and Risk Sentiment

The rupee's continued weakness reflects a shift toward risk aversion among investors, with the currency facing technical challenges at current levels. According to HDFC Securities' analysis, the USDINR pair is expected to find support around the 88.95 level in the near term, while any potential recovery faces a significant hurdle at the 90.30 level.

The combination of month-end corporate demand, foreign fund outflows, and thin market liquidity created a perfect storm for the rupee's decline, highlighting the currency's vulnerability to multiple headwinds in the current market environment.

The Indian rupee depreciated 8 paise to close at 89.98 against the US dollar on Monday, weighed down by foreign fund outflows and negative trends in domestic equities. The currency opened at 89.95 and traded in a range between an intraday high of 89.88 and low of 89.99 during the session.

Trading Dynamics and Market Pressures

Forex traders attributed the rupee's decline to persistent capital withdrawals from foreign investors and heightened dollar demand from importers. The currency faced additional pressure from corporate dollar purchases through private banks, with limited speculative activity evident in shallow trading volumes.

"Traders may watch out for Federal Open Market Committee (FOMC) minutes and core PCE (Personal Consumption Expenditures) price index data from the US this week," said Anuj Choudhary, Research Analyst at Mirae Asset ShareKhan.

Foreign Investment Outflows Impact Markets

Foreign institutional investors continued their selling spree, offloading equities worth ₹317.56 crore on Friday according to exchange data. This persistent capital withdrawal ahead of the holiday break has shifted market sentiment toward risk aversion, putting additional pressure on the rupee.

The domestic equity markets reflected this negative sentiment, with the Sensex declining 345.91 points to settle at 84,695.54, while the Nifty dropped 100.20 points to 25,942.10.

Global Market Conditions and Outlook

The dollar index remained relatively stable, trading marginally higher by 0.02% at 98.03, as most markets operated in holiday mode with thin trading volumes limiting significant movements. Brent crude futures traded 1.48% higher at $61.54 per barrel amid thin year-end trading and ongoing global demand concerns.

Choudhary expects the USDINR spot price to trade in a range of 89.60 to 90.20 this week, with key US economic data releases likely to influence direction.

Trade Relations and Reserve Position

External Affairs Ministry spokesperson Randhir Jaiswal confirmed that India and the US remain engaged in concluding a fair, balanced and mutually beneficial bilateral trade agreement. This ongoing dialogue provides a backdrop for currency movements as markets assess potential trade developments.

India's forex reserves jumped $4.368 billion to $693.318 billion during the week ended December 19, according to Reserve Bank data released Friday, providing continued support for currency stability despite recent weakness.