Rupee edges higher against dollar, but external headwinds persist

The Indian rupee opened marginally higher by 1 paise at 95.70 against the US dollar on Thursday (June 4), compared with its previous close of 95.71, even as persistent foreign fund outflows, elevated crude oil prices and geopolitical tensions in the West Asia kept pressure on the currency.

Foreign portfolio investors sold nearly $600 million worth of Indian equities on Wednesday, according to preliminary data, after about $3 billion of outflows over the previous three sessions.

The pace of June outflows has already nearly matched May's total, weighing on the domestic currency.

Market participants said concerns over a prolonged conflict in the West Asia and its impact on oil prices remain a key risk for India, a major crude importer.

Most Asian currencies weakened and regional equities declined amid renewed uncertainty surrounding the region.

Jateen Trivedi, Vice President Research Analyst – Commodity and Currency at LKP Securities, said that higher crude prices have capped the rupee's recent recovery and kept market sentiment cautious ahead of the Reserve Bank of India's monetary policy decision on June 5.

He expects the rupee to trade in the 95.25-96.25 range in the near term.

A recent Piramal Finance report cautioned that a combination of rising crude oil prices and a weakening rupee could revive inflationary pressures and external sector risks if sustained over a prolonged period.