The Indian rupee is bracing for a potentially turbulent week, with currency experts warning of increased sensitivity to global geopolitical shocks and market volatility. The local unit, which has already depreciated by nearly 5% over the past year, faces fresh pressure from international tensions and domestic market dynamics.
Geopolitical Storm Adds to Rupee's Woes
Bankers highlight that the rupee is particularly vulnerable this week due to the ongoing political uncertainty triggered by the removal of Venezuela's President Nicolas Maduro by US forces. While India sources less than 1% of its oil imports from Venezuela, the fear is not just about crude supply. Market participants are alarmed by the potential for retaliation by other global powers and a broader risk-off environment that could negatively impact emerging market assets, including the rupee.
"One can expect that the currency will be the most sensitive to global volatilities," said Anshul Chandak, head of treasury at RBL Bank. He added that the market is positioned toward a weak rupee, although the levels at which the Reserve Bank of India (RBI) might intervene remain uncertain.
Recent Weakness and Immediate Outlook
The rupee has been under sustained pressure, hitting a record low of 91.14 against the US dollar earlier before recovering. Over the past two weeks, it has declined continuously, slipping below the 90-per-dollar mark, dragged down by strong year-end corporate demand for the greenback.
Alok Singh, head of treasury at CSB Bank, noted that the rupee has been trading with a weakening bias in the last few sessions. "Although the RBI has announced measures to support the rupee, the next such measure is only on January 13. So, until then it is possible that the rupee may weaken to Rs 90.50 to Rs 91 per dollar," Singh stated.
RBI's Crucial Dollar-Rupee Swap Awaited
All eyes are on the central bank's planned operation scheduled for January 13. The RBI will conduct a $10 billion three-year dollar-rupee buy/sell swap. In this operation, banks will sell dollars to the central bank in exchange for rupees. These dollars will be swapped back after three years at a higher price, which factors in the forward premium.
Bankers believe the extent of any further weakness in the currency will heavily depend on the central bank's actions next week, with current market positioning tilted towards depreciation.
Broader Factors Weighing on Sentiment
Beyond the immediate geopolitical flashpoint, several other factors are hurting sentiment towards the rupee. These include:
- Continuous foreign institutional investor (FII) outflows from Indian markets.
- Weak export performance, which is contributing to the trade deficit.
- Global economic uncertainty stemming from higher US tariffs and slowing growth.
The combination of these elements creates a challenging environment for the currency. Market participants are closely assessing the overall impact of ongoing global tensions, with sentiment remaining fragile. The coming days will be critical in determining whether the rupee can find a floor or if it is headed for further depreciation against a strengthening US dollar.
