Indian rupee slips near record low amid dollar demand and Fed policy jitters
Business
The Indian rupee extended its losing streak on Wednesday, pressured by robust dollar demand from importers making month-end payments and declining hedging costs that made bearish bets on the currency more attractive.
By mid-morning trading, the rupee hovered at 86.5850 against the greenback, marking a 0.1% decline as it inched closer to its all-time low of 86.6475 recorded earlier this month.
"We're seeing unusually strong dollar buying interest at the RBI's reference rate today," said a Mumbai-based forex trader who requested anonymity. "The combination of corporate demand and favorable hedging conditions is creating perfect storm conditions for the rupee."
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The currency's weakness comes amid multiple headwinds: falling forward premiums following RBI's liquidity injections, continued foreign portfolio outflows, and renewed concerns about potential trade policy shifts under a possible Trump administration in the US.
Traders noted significant movement in forward markets, with the 1-month dollar-rupee premium plunging to 15.50 paisa - less than half its recent peak of 28.25 paisa earlier this month. The 1-year implied yield similarly dropped about 60 basis points from its recent high.
"These lower hedging costs serve as a double whammy," explained another dealer at a private bank. "They encourage importers to lock in rates while simultaneously reducing barriers for speculators looking to short the rupee."
The currency has now depreciated 1.1% since January began - underperforming all other major Asian currencies during this period.
Market participants are bracing for potential volatility later today as all eyes turn to Washington where Federal Reserve Chair Jerome Powell will announce their latest policy decision followed by his press conference.
"Technically speaking," noted Amit Pabari of CR Forex Advisory Services Ltd., "we expect USD/INR trading between support at around ¥86-20 levels with resistance capped near ¥86-80 area unless we get major surprises from Fed guidance." RELATED MARKET DEVELOPMENTS:
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