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The rupee depreciated 5 paise, to settle at 83.49 (provisional), against the US dollar, on Thursday, due to foreign capital outflows, and rising crude oil prices, overseas.
Forex traders said, a weak American currency, and a firm trend in the equity markets, supported the local currency, even as investors remained concerned ahead of the RBI's monetary policy decision, to be announced on Friday.
At the interbank foreign exchange market, the local unit opened at 83.40, and touched the intra-day low, of 83.50 against the greenback during the session.
The local unit finally settled at 83.49 (provisional), against the American currency, down 5 paise, from its previous close.
On Wednesday, the rupee settled 7 paise higher, at 83.44 against the dollar.
According to Anuj Choudhary, Research Analyst, at Sharekhan by BNP Paribas, the rupee depreciated due to a surge in crude oil prices, and selling pressure from FIIs (foreign institutional investors). However, a weak US dollar, and positive tone in the domestic markets, supported the rupee at lower levels.
"We expect the rupee to trade, with a slight negative bias, on worries over rising crude oil prices, and as FIIs continue to sell in the markets. However, there is a positive tone in the domestic markets, as NDA is expected to come back to power for the third consecutive term, raising optimism, over policy continuity and may support the rupee at lower levels," Choudhary said, adding that "USD-INR spot price, is expected to trade in a range of ₹83.20 to ₹83.80".
Meanwhile, the dollar index, which gauges the greenback's strength, against a basket of six currencies, was trading 0.03 per cent lower at 104.18.
Analysts attributed the weakness in the dollar index, to a sharp fall, in US Treasury yields, after the latest data showed job growth in May, was slower than estimated, raising expectations of an interest rate cut, by the US Federal Reserve.
Market participants are likely to take further cues, from the weekly employment data, and trade balance numbers, to be released later in the day. Besides, the decision of RBI's rate-setting panel, is likely to impact investor sentiment, they added.
The Monetary Policy Committee (MPC), of RBI on Wednesday, started its three-day deliberations to decide the next monetary policy. Reserve Bank Governor, Shaktikanta Das, will announce the outcome on Friday.
"The Reserve Bank of India is set to keep its repo rate at 6.5 per cent at its June 7 review. The policy is turning more restrictive, as cooling inflation pushes up real rates, hurting growth," said Amit Goel, co-founder, and Chief Global Strategist at Pace 360.
He further said, the RBI’s record dividend payment of ₹2.1 lakh crore to the government for FY24, may alleviate concerns about the growth outlook.
Brent crude futures, the global oil benchmark, advanced 0.31 per cent to $78.65 per barrel.
On the domestic equity market, the 30-share BSE Sensex climbed 692.27 points, or 0.93 per cent, to close at 75,074.51. The broader NSE Nifty rose 201.05 points or 0.89 per cent to 22,821.40.
Foreign investors were net sellers of Indian equities on Wednesday, as they offloaded shares worth ₹5,656.26 crore, on a net basis. FIIs bought shares worth ₹21,012.72 crore, and sold equities, worth ₹26,668.98 crore, in the cash segment.
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