The Indian currency on Friday posted the biggest single-day fall in a month on heavy dollar buying by importers, foreign outflows and less intervention from the Reserve Bank of India (RBI), along with dollar strengthening, according to currency traders.
The rupee fell 57 paise to 90.86 against the US dollar, taking the month-to-date depreciation to 1.10%, according to Bloomberg. In the current financial year so far, the currency has fallen 6.32%, the worst in three years. The rupee continues to be the worst performing currency compared to its Asian peers. The dollar index has rebounded and is trading at a six-week high at 99.28, further weakening the rupee.
Importer Demand
“There was huge dollar demand, while the RBI was absent from the market. Huge dollar buying emerged during the forex swap reference rate window today. That’s why the rupee has kept weakening during the day. We believe the weakness to persist and potentially hit record lows due to continued delay in the trade deal and foreign capital outflows. We expect the rupee to trade in the range of around 89.90-91.10 in the near-term,” said Dilip Parmer, research analyst, HDFC Securities. In January so far, foreign investors offloaded equities worth $ 2.5 billion.
The other geopolitical tensions have been weighing heavily on the rupee. Besides demand from oil importers, there was continuous demand from banks and corporates for dollars to hedge their exposures, a dealer at a state-owned bank said.
Anil Kumar Bhansali, head of treasury, Finrex Treasury Advisors LLP, said a $3-billion maturing position in the non-deliverable forwards market also contributed to the rupee’s fall (on Friday).
Analysts Eye 92-Level
The continued uncertainty surrounding the India–US trade deal keeps the currency under pressure. Most currency traders and analysts project the currency at 92 by March.
“The uncertainty over India-US trade deal, persistent foreign outflows, the RBI’s short forward positions, will continue to push the rupee lower going ahead. This pressure may linger, possibly hitting 92 before March,” said Bhansali.