Rupee falls 3 paise to 83.19 against US Dollar on New Year's day

The Indian Rupee has fallen 0.3 paise to 83.19 against the US Dollar on Monday, January 1, 2024. The direction of the Rupee at the beginning of the New Year is anticipated to be influenced by the US Federal Reserve's interest rate outlook and the Reserve Bank of India's forex strategy.

While other Asian markets show a lackluster performance, traders emphasise that the focus is on the Fed and RBI as the key drivers shaping the currency's trajectory.

"The most important things I can think of to begin the year are the Fed and RBI," commented an FX trader at a bank, underlining the pivotal role these institutions play in shaping market sentiment.

The balance of risks for USD/INR is seen on the downside, influenced by the Dollar's struggles due to the Fed's pivot and the anticipation of a different RBI strategy. The RBI has actively intervened in foreign exchange markets, maintaining USD/INR within a narrow range over the last few weeks.

The expectation of multiple rate cuts by the Fed in 2024 has contributed to a weakened demand for the Dollar, with the Dollar index declining 5 per cent over November and December. The first rate cut is anticipated as early as March.

As the market enters an uncertain period at the beginning of the year, analysts from Societe Generale suggest that clear trends may be elusive given the movements observed in the preceding months.

Key indicators for the currency include a one-month non-deliverable Rupee forward at 83.30 and an onshore one-month forward premium at 8.25 paise. Additionally, the upcoming release of important US data this week, including ISM manufacturing data on Wednesday and services and non-farm payrolls print on Friday, could impact the interest rate outlook and, consequently, the Dollar's performance.

Other market indicators include Brent crude futures, which dropped to $77.04 per barrel on Friday, and the ten-year US note yield standing at 3.87 per cent on the same day.

In terms of foreign investments, NSDL data reveals that foreign investors bought a net $679.7 million worth of Indian shares on December 28, and a net $105.4 million worth of Indian bonds on the same day. These indicators contribute to the broader market sentiment as traders await further cues from the Fed, RBI, and upcoming economic data.

(With Reuters inputs.)