The Indian rupee tracked the equity market cues and extended the losing streak. It closed at 90.07, down 0.1% on the day. The currency opened lower at 90.06 against the dollar and dipped further to 90.17, down 0.2% from its opening level.
2 big concerns for rupee
The rupee weakened amid persistent foreign institutional investor (FII) outflows and caution surrounding the US Federal Reserve’s upcoming policy announcement on Wednesday, which is likely to influence the future trajectory of the currency.
Foreign capital flows are typically sensitive to the Fed’s policy stance. The uncertainty triggered by these global cues also weighed on domestic equities.
“The rupee slipped by 13 paise to 90.06 against the dollar as prolonged FII selling, weak equity markets, and the lack of clarity on the India–US trade deal continued to weigh on sentiment. With the Fed policy outcome and India CPI data lined up this week, volatility is likely to remain elevated. The rupee is expected to trade in a weak range of 89.75–90.30,” said Jateen Trivedi, VP and Research Analyst at LKP Securities.
India -US trade talks
The ongoing uncertainty about India – US trade deal is also weighing on investor sentiment.
Rupee among worst-performing Asian currencies
On 10 December, the currency breached the psychologically crucial 90-level mark for the first time amid persistent foreign investment outflows, tensions over the stalled US–India trade deal, and elevated tariffs imposed by US President Donald Trump on Indian goods. Recently, the rupee has been among the worst-performing Asian currencies, having fallen nearly 5% on an aggregate basis.
The rupee has hovered in the 89–90 range over the past week, leading to speculation among traders. “Rupee’s downward spiral to breach the 90 per dollar mark coupled with persistent foreign fund outflows this month has precipitated volatility. With the US Fed meeting scheduled later this week, investors may not be in a hurry to take positive bets on equity assets,” said Prashanth Tapse, Senior VP (Research), Mehta Equities.
RBI says dollar swap is not meant to support the rupee
On Friday, RBI Governor Sanjay Malhotra announced that the central bank will undertake Open Market Operations (OMO) purchases worth Rs 1 lakh crore and a 3-year Dollar–Rupee Buy-Sell Swap of USD 5 billion in December to inject additional liquidity into the system. He clarified that the buy-sell swap is aimed at boosting liquidity to the market.
“In the short term, USD-INR buy-sell operations are likely to inject durable rupee liquidity and rebuild FX reserves synthetically, allowing the RBI to tolerate a weaker rupee while preventing disorderly overshoots,” Elara Capital said in a report.