The Indian rupee is poised to open with gains on Tuesday, December 23, buoyed by a weaker US dollar in global markets. However, financial experts predict that this upward movement will likely be constrained as importers step in to buy dollars, seeking to lock in favourable rates after a significant rally driven by the Reserve Bank of India (RBI).
RBI Intervention Sparks Sharp Reversal
The domestic currency staged a remarkable recovery from its record low of 91.0750 hit just last Tuesday. Market participants largely credit this sharp turnaround to aggressive and strategically timed intervention by the country's central bank. This action successfully maximised near-term price impact and halted the persistent weakening cycle the rupee had entered. The forceful move prompted a swift reassessment of currency positioning by both corporations and speculators.
Importers Step In to Hedge, Limiting Gains
With the rupee now trading significantly stronger, bankers and foreign exchange advisors view the rally as a prime opportunity for importers to increase their hedge cover. Evidence of this pent-up demand was clearly visible during Monday's trading session. Bankers anticipate this trend to continue, which will likely act as a ceiling for the rupee's appreciation in the immediate future.
"When the currency moves from 91 to 89.50 so rapidly, it's inevitable that importers will react quickly," explained a foreign exchange salesperson at a leading private sector bank. "The market needs several sessions to fully digest a price move of this magnitude."
External Factors Provide Support
The rupee is expected to draw comfort at the open from a modest strengthening of other Asian currencies and a retreat in the dollar index toward the 98 level. The dollar index fell approximately 0.3% on Monday and extended its losses during Asian trade. This decline was driven by improved risk sentiment among global investors and growing expectations of additional interest rate cuts by the US Federal Reserve.
Adding to the downward pressure on the greenback, threats of intervention by Japanese authorities to support the yen provided a boost to the Japanese currency, indirectly supporting other Asian units including the rupee.
Key Market Indicators at a Glance
As of the latest data, critical benchmarks shaping the currency market include:
- The one-month non-deliverable forward for the rupee was indicated at 90.26, while the onshore one-month forward premium stood at 45.88 paise.
- The dollar index was down, trading at 98.07.
- Brent crude futures saw a minor dip of 0.1%, trading around $62 per barrel.
In a positive sign for Indian assets, foreign institutional investors were net buyers, purchasing a net $240.3 million worth of Indian equities on December 21. They also bought a net $43.2 million in Indian bonds on the same day, according to data from NSDL.
The rupee's path forward appears to be a tug-of-war between supportive global dollar weakness and domestic corporate demand, setting the stage for potentially range-bound trading in the coming sessions.
