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Several factors are driving this decline. Firstly, the US Dollar has strengthened, supported by expectations around the incoming Donald Trump administration’s policies and the Federal Reserve’s hawkish stance on interest rates.
The Dollar Index, which tracks the greenback against a basket of six major currencies, was last up 0.08% at 107.99. Since the value of the Dollar and the Rupee are inversely related, a rising Dollar pushes the Rupee lower.
Additionally, there has been increased demand for dollars from Indian importers, particularly those in the oil sector, as they prepare to meet higher import bills. This surge in demand for foreign currency is further weighing on the rupee.
The Reserve Bank of India (RBI) may have shifted its policy approach, allowing the rupee to adjust more freely in the market. The RBI’s bulletin from November indicated that the currency was overvalued by about 8%, which could have prompted the central bank to step back from its previous interventions.
According to the dealers, over the past few months, the RBI had been actively participating in the Non-Deliverable Forward (NDF) market, taking long positions in the rupee to support its value. However, as some of these positions are now expiring, the RBI may be allowing them to settle in the onshore market, contributing to the rupee’s fall.
Despite this, it is important to note that from a year-to-date and quarter-to-date perspective, the rupee remains one of the stronger emerging market currencies.
Global crude oil prices are also inversely proportional to the value of the rupee. If the value of crude oil eases, the value of the rupee appreciates and vice versa.
The crude oil benchmarks remain poised for a weekly gain, buoyed by optimism over China’s economic recovery. As of the latest update, Brent crude futures were up 0.16% to $72.97 per barrel, while WTI futures also gained 0.3%, trading at $69.82 per barrel.
Also Read: Barclays strategist sees rupee at 87 per dollar by end-2025, but outperforming Asian peers
