The Indian rupee concluded Thursday's trading session on a weaker note, surrendering early gains that were spurred by unexpected intervention from the country's central bank. Persistent anxieties over potential US tariffs and continuous foreign fund withdrawals from equities ultimately dragged the local currency lower.
RBI's Surprise Move Overpowered by Market Forces
The rupee began the day at 89.95 against the US dollar but quickly strengthened to 89.75. This rebound was fueled by the Reserve Bank of India (RBI), which stepped into the market to sell dollars for the second consecutive day, as confirmed by several bankers. However, this support proved temporary.
The currency could not hold its ground and finished the session at 90.0175, marking a decline from its previous close of 89.88 on Wednesday. Market experts had expressed skepticism about the durability of the recovery from Tuesday's low of 90.30, with many advising importers to secure hedges despite the rupee's brief strength.
Triple Whammy of Tariffs, Outflows, and RBI's Stance
Anil Bhansali, Head of Treasury at Finrex Treasury Advisors, pinpointed the combined pressures weighing on the rupee. "The combined effect of 500% tariffs proposed by the U.S., a fall in equity markets, and the RBI's short forward positions kept consistent pressure on the rupee," he explained. He noted that the central bank's intermittent dollar sales provided only fleeting relief.
A trader from a foreign bank highlighted the dominant role of a single large player—the RBI—in dictating market direction. "Market moves have again started to be dominated by one large player, and the currency changes direction based on the presence or absence of RBI," the trader stated.
Concurrently, equity markets extended their losing streak to four days. The Nifty 50 Index fell by 1%, driven by foreign outflows linked to escalating US tariff concerns and a sell-off in export-focused companies.
Global Headwinds and Data in Focus
Adding to the global uncertainty, Republican Senator Lindsey Graham indicated on Wednesday that a bipartisan sanctions bill targeting nations engaged in business with Russia could advance in the US Congress and be voted on as early as next week.
Market participants are now turning their immediate attention to the crucial U.S. non-farm payrolls report, scheduled for release after Indian market hours on Friday. This data is anticipated to provide new insights into the strength of the American labor market and potentially influence the Federal Reserve's monetary policy trajectory.
Meanwhile, in the domestic forex derivatives market, rupee premiums edged higher as importers actively purchased and paid for forward contracts to cover their foreign currency obligations, reflecting ongoing hedging demand amidst the volatility.
