Reeling rupee receives a lifeline from dollar`s plunge to a near 4-month low
The under-pressure Indian rupee is poised to open higher on Tuesday after the dollar slumped to a four-month low, hit by the rally in the Japanese yen and unease over President Donald Trump’s erratic policymaking.
The 1-month non-deliverable forward indicated the rupee will open in the 91.68-91.72 range versus the U.S. dollar, having settled at 91.94 on Friday. Indian financial markets were shut on Monday for a holiday.
The rupee fell 1.18% last week, taking it near the 92.00 per dollar handle for the first time. The move has coincided with persistent equity outflows, now at nearly $4 billion for January.
Traders pointed out that the pace of the decline suggests pressures are not limited to portfolio flows alone, particularly with bullion imports appearing to have picked up.
The rupee's weakness has built up depreciation expectations, in turn amplifying dollar demand.
Corporates have stepped up hedging activity, while speculators added to long-dollar positions, creating a feedback loop that has kept the rupee on the back foot, bankers said.
The rupee’s slide has come despite the Reserve Bank of India stepping in regularly to lean against the move, according to traders. Market participants say the central bank is supplying dollars at various levels rather than defending any single level.
"The RBI has the capacity to intervene — as seen in prior episodes," said Abhishek Goenka, founder and CEO of
India Forex Advisors.
"Its recent restraint suggests a clear policy choice: support growth over aggressively defending the currency."
DOLLAR SLIDE
The rupee is set to find support at the open from the dollar index, which is languishing near a four-month low on the back of a rally in the yen, a looming U.S. federal shutdown and President Donald Trump’s erratic policymaking.
Meanwhile, the Reserve Bank of India on Friday unveiled measures to inject more than $23 billion of liquidity into the banking system, including a $10 billion buy/sell FX swaps.
And in a welcome development for rupee, India and European Union wrapped up talks for a landmark trade deal amid strained US ties.
