Rupee comes under pressure as dollar demand picks up
Forex traders said strong dollar demand from corporates, importers and foreign portfolio investors is weighing on the rupee. The combined need for dollars to pay for goods, manage overseas obligations and invest abroad is tightening supply in the local market, nudging the currency lower.
Why the demand for dollars is rising
- Corporate needs: Companies often buy dollars to meet overseas payments, hedge foreign currency exposure, or fund foreign subsidiaries.
- Importers: Higher import bills, especially for oil and raw materials, increase the need for dollars.
- Foreign portfolio investors (FPIs): When FPIs buy international assets or repatriate gains, they convert local currency into dollars, adding to demand.
- Global dollar strength: A broadly strong dollar makes other currencies, including the rupee, more vulnerable to depreciation.
Market impact and what it means
A weaker rupee can make imports more expensive, potentially feeding into higher costs for business and consumers. For exporters, a softer currency can be a competitive boost. For markets, sustained dollar demand may weigh on equity inflows if returns are recalibrated for currency risk.
What traders and businesses should watch
- Central bank moves: Any intervention or policy signals from the central bank can change currency dynamics quickly.
- Global cues: US interest-rate expectations and dollar momentum will continue to influence flows.
- Corporate hedging: How companies manage currency risk—through forwards or swaps—will affect near-term demand.
- Portfolio flows: Net FPI activity can reverse or reinforce the pressure depending on sentiment.
In short, ongoing dollar demand from corporates, importers and FPIs is the main factor putting pressure on the rupee. Businesses and investors should stay alert to policy responses and global developments that can shift supply and demand for the currency.