The Indian rupee is poised to continue its decline on Thursday, December 4, after decisively breaking through the psychologically significant level of 90 against the US dollar. This breach has solidified a bearish outlook for the currency and is expected to attract increased speculative activity in the forex market.
Market Opening and Trader Sentiment
Indications from the 1-month non-deliverable forward market suggest the rupee will open in the range of 90.25 to 90.35 per US dollar. This follows its settlement at 90.19 on the previous day, Wednesday. Bankers and traders assert that the fall past the 90 handle has fundamentally shifted market sentiment, reinforcing a weak bias for the local unit.
This shift in dynamics is prompting different reactions from market participants. Importers are likely to accelerate their hedging activities to lock in rates, fearing further depreciation. Conversely, exporters are expected to hold back on converting their dollar earnings, anticipating more favourable exchange rates in the near future.
Lack of Positive Catalysts and RBI Stance
Market experts point to a lack of immediate positive triggers for the rupee. Notably, Madan Sabnavis, chief economist at Bank of Baroda, highlighted that a potential India-U.S. trade deal "is still not on the table," which continues to weigh on the currency's prospects. Furthermore, the Reserve Bank of India (RBI) has recently signalled a preference for measured intervention rather than aggressive action to defend the rupee.
This apparent restraint from the central bank is making speculative accounts more confident in placing bets against the rupee. Sabnavis added that "the RBI appears to be apparently silent on intervention" and noted that any level sustained by the rupee for 2-3 days tends to become the new benchmark, making the 90 level potentially sticky.
Underlying Economic Pressures
The rupee's weakness is particularly notable because it is occurring despite a broadly steady dollar index, which was at 98.96. This underscores that the pressure is primarily driven by local flow dynamics rather than broad US dollar strength.
The core issue lies in India's widening trade deficit and tepid capital flows, which have skewed the underlying demand-supply balance for the US dollar. Bankers explain that this combination has brought the market to a point where even routine corporate dollar buying can exert significant pressure on the rupee if the RBI is not actively absorbing the flow.
Foreign investors sold a net $448.7 million worth of Indian shares on December 2, as per NSDL data, though they bought a net $2.1 million in bonds on the same day. Other key indicators include Brent crude futures trading 0.4% higher at $62.9 per barrel and the ten-year US note yield at 4.08%.
In summary, with the 90 level breached, a cautious RBI, and unfavourable flow dynamics, the Indian rupee faces sustained pressure, inviting both defensive corporate action and speculative market bets.
