The Indian rupee showed marginal weakness against the US dollar in a volatile morning trading session, while the domestic stock market witnessed a significant upswing. This movement comes amid a complex interplay of global and local economic factors, including a new development involving Indian exporters.

Rupee Performance and Exporters' Request

The Indian currency opened weaker at ₹88.09 against the US dollar but experienced sharp fluctuations during early trading. After briefly strengthening to ₹87.85, it settled at ₹88.03, marking a decline of 0.01 from its previous close.

In a significant development, Indian exporters are lobbying the Reserve Bank of India (RBI) to allow temporary conversion of US business proceeds at ₹103 per dollar, representing a 15% depreciation from current levels near the record low of ₹88.33. The Engineering Export Promotion Council of India plans to present this request to RBI Governor Sanjay Malhotra at an upcoming meeting.

Factors Influencing Currency Movement

Several factors contributed to the rupee's performance:

1. Foreign Institutional Investor (FII) Outflows: Sustained selling by foreign investors continued to exert pressure on the rupee. FIIs sold equities worth ₹1,666.46 crore, impacting the currency's strength.

2. Stronger Dollar: The US Dollar Index, which measures the greenback against a basket of major currencies, rose by 0.07% to 98.21, making the dollar relatively more expensive.

3. Global Oil Prices: Brent crude, the global oil benchmark, fell by 0.49% to $67.27 per barrel. Lower oil prices typically benefit the rupee, as India is a major oil importer.

4. GST Rate Cuts: Recent reductions in Goods and Services Tax (GST) rates helped limit the rupee's losses, potentially by improving economic sentiment.

Impact of US Tariffs on Exporters

Exporters are facing approximately 30% losses in US-bound shipments due to Trump's 50% tariffs on Indian goods, the highest in Asia. The US is India's largest export market, with labor-intensive sectors like textiles and jewelry expected to be most affected. The rupee has weakened 2.8% this year, becoming Asia's worst performer.

In addition to the exchange rate request, exporters have also sought additional government support, including loan repayment moratoriums, lower interest rates, and wage support.

Stock Market Rally

In contrast to the currency's slight decline, Indian stock markets opened on a strongly positive note:

This rally in equities markets stands in stark contrast to the FII outflows, suggesting strong domestic investor participation.

Services Sector Boost

Adding to the positive economic indicators, India's services sector demonstrated remarkable growth:

• The HSBC India Services Purchasing Managers' Index (PMI) rose to 62.90 in August from 60.50 in July.
• This marks a 15-year high for the services sector, indicating robust expansion in this crucial segment of the economy.

Outlook

The contrasting movements in the currency and stock markets, coupled with strong services sector growth and exporters' concerns, paint a complex picture of the Indian economy. While FII outflows and a stronger dollar are putting pressure on the rupee, domestic factors such as GST rate cuts and booming services sector activity are providing some counterbalance.

However, currency experts and former RBI officials oppose using exchange rate depreciation as a policy tool, arguing it would hurt importers and foreign investor sentiment. They suggest alternative measures like interest rate subventions and government subsidies to support exporters.

Investors, economists, and policymakers will be closely watching how these various factors play out and their impact on both the currency and equity markets.

The Indian rupee showed a marginal recovery on Tuesday, closing at 88.16 against the US dollar, a slight improvement of 0.05% from Monday's close of 88.20. However, the currency's gains were limited due to persistent concerns over US tariffs and robust dollar demand from oil importers.

Intraday Fluctuations and Factors Affecting the Rupee

The rupee initially strengthened to an intraday high of 87.85 but retreated as the day progressed. The pullback was primarily attributed to strong dollar demand from oil importers, highlighting the ongoing challenges faced by the Indian currency.

Monday saw the rupee hit a lifetime low of 88.33 following the US government's decision to impose additional tariffs on Indian goods. Market participants expect these tariff-related concerns to continue exerting pressure on the rupee in the near term.

Global Currency Movements and US Economic Indicators

The dollar index, which measures the greenback against a basket of major currencies, strengthened by 0.77% to 98.40. This broad dollar strength also contributed to the limited gains of the Indian rupee.

Investors are now turning their attention to upcoming US nonfarm payrolls data, which is expected to provide insights into the Federal Reserve's potential rate policy decisions.

Federal Reserve Rate Cut Expectations

Market expectations for a 25-basis-point rate cut by the Federal Reserve remain high, with the CME FedWatch Tool indicating a probability of around 90%. These expectations have been bolstered by recent dovish remarks from Fed Chair Jerome Powell at the Jackson Hole symposium.

The combination of US tariff concerns, global economic uncertainties, and anticipation of the Fed's next move continues to create a challenging environment for the Indian rupee. Traders and economists will be closely monitoring these factors in the coming days to gauge the currency's future trajectory.