The Indian rupee is poised to begin trading at a new historic low against the US dollar on Tuesday, December 16. Analysts attribute this continued weakness to a combination of unfavourable global risk sentiment and a persistent imbalance in foreign currency flows that has plagued the market in recent sessions.
Flow Mismatch and Domestic Pressures
Market indicators, specifically the 1-month non-deliverable forward, suggested an opening range of 90.80 to 90.85 for the rupee. This follows Monday's close at 90.73, where the currency touched a previous lifetime low of 90.7875. This marks the third consecutive session where the rupee has set a new record low.
Bankers and traders have highlighted a structural issue driving the decline: a consistent mismatch between dollar supply and demand. On one side, there is robust dollar buying linked to fixings, potential non-deliverable forward (NDF) maturities, and ongoing portfolio outflows. Adding to this pressure are dollar purchases by state-owned enterprises.
Furthermore, the hedging behaviour of importers and exporters is exacerbating the trend. Importer hedging demand has consistently exceeded exporter selling recently. This is driven by a pessimistic outlook for the rupee and a limited appetite among exporters to lock in current rates for future receipts.
Global Risk Aversion Amplifies Weakness
The domestic flow challenges are being magnified by a fragile risk environment across Asian financial markets. Equity markets were sliding, and US futures pointed to further losses, creating a risk-off tone that weighed on most Asian currencies.
Investors are exercising caution ahead of key US economic data releases, including the delayed November jobs report. This data is crucial as it will provide clues about the future policy path of the US Federal Reserve. While the Fed delivered an expected rate cut last week and signalled only one more reduction in 2026, market expectations are still leaning towards at least two cuts next year.
"The current phase of rupee weakness appears more flow-led than panic-driven," noted India Forex and Asset Management. The firm added, "Capital outflows are outweighing India's structural strengths in the near term. Until there is a clear reversal in portfolio flows or a positive catalyst on the trade front, rupee is likely to remain under pressure."
Market Indicators and Data Points
A currency trader at a Mumbai-based bank summed up the situation, stating that with the flow picture so skewed, any negative global cue tends to be magnified for the rupee.
Key financial indicators as of Tuesday include:
- The one-month non-deliverable rupee forward was at 91.14.
- The onshore one-month forward premium stood at 29 paise.
- The dollar index was slightly lower at 98.24.
- Brent crude futures were down 0.6% at $60.2 per barrel.
- The ten-year US note yield was at 4.17%.
According to NSDL data, foreign investors were net buyers of Indian shares and bonds on December 12, purchasing $14.9 million in equities and $41 million in debt. However, this positive data point has been insufficient to counter the broader outflow trend and demand-supply imbalance pressuring the rupee in subsequent sessions.
