Rupee Firms 7 Paise as Dollar Dips on Weak US Manufacturing Data

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AuthorKavya Nair|Published at:
Rupee Firms 7 Paise as Dollar Dips on Weak US Manufacturing Data
Overview

The Indian rupee gained 7 paise to open at 90.21 against the dollar on January 6, buoyed by a weaker dollar index. This strength follows softer-than-expected US manufacturing PMI data, which contracted sharply in December. However, persistent importer demand, uncertainty over a US-India trade deal, and potential tariff threats continue to pressure the rupee, with analysts predicting a potential return to 91 levels.

Rupee Sees Modest Gain on Easing Dollar

The Indian rupee opened 7 paise higher on January 6, reaching 90.21 against the US dollar. This uptick was largely driven by a dip in the dollar index, which eased to 98.231 in morning trade. The currency's initial strength came as market sentiment shifted following disappointing economic data from the United States.

US Manufacturing Sector Contracts Sharply

The December ISM Manufacturing Purchasing Managers' Index (PMI) for the U.S. fell to 47.9. This figure marks the sharpest contraction in factory activity since 2024, indicating a notable slowdown in industrial momentum. The actual reading came in below market expectations of 48.3, surprising many analysts and contributing to the dollar's decline.

Underlying Pressures Persist

Despite the brief appreciation, headwinds continue to buffet the rupee. Persistent importer demand for dollars at the start of the year, coupled with subdued foreign portfolio investment inflows, exerts downward pressure. Adding to these concerns are ongoing uncertainties surrounding a potential US-India trade deal and threats from U.S. President Donald Trump to impose further tariffs on Indian goods. Analysts at CR Forex Advisors noted the potential for the rupee to retrace gains, with some forecasting a return to 91 levels if trade negotiations falter.

Expert Outlook on Depreciation

Finrex Treasury Advisors LLP suggested that the lack of progress on the trade deal could push the rupee back towards 91. They also observed that stock markets have faced selling pressure at higher levels, implying foreign investors might be exiting positions. Exporters are advised to continue selling dollars on a spot basis, while importers may look to hedge on dips.

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