The Indian rupee faces potential all-time lows as the dollar rallies on Fed policies. The 1-month non-deliverable forward suggests the rupee will start at 85.80-85.82 per dollar, down from the previous session's 85.7525. This projection raises concerns about surpassing the all-time low of 85.8075, which was reached last Friday.
The dollar index rose 0.7% on Thursday to 109.54, its highest level in over two years, driven by strong U.S. jobless claims data that followed December's 7.7% increase. Analysts link this enduring strength to the Federal Reserve's hawkish monetary policy. A currency trader suggested that the dollar's rally could continue at least until the U.S. presidential inauguration.
India's central bank, the Reserve Bank of India (RBI), has actively defended the rupee at the 85.80 level, selling dollars heavily to curb the local currency's decline. Despite this intervention, the rupee has been under sustained pressure, exacerbated by India's expanding trade deficit and reduced foreign portfolio inflows.
India’s economic fundamentals have also contributed to the rupee's struggles. A widening trade deficit has increased demand for dollars, while foreign investors have reduced their exposure to Indian assets. On January 1 alone, foreign investors sold a net $69.7 million worth of Indian shares and $9.7 million worth of bonds, according to NSDL data.
Additionally, rising crude oil prices have added to India’s import bill, further pressuring the rupee. Brent crude futures were up 0.3% at $76.1 per barrel as of the latest session. Combined with global monetary tightening, these factors create a challenging environment for the Indian currency.
The rupee's trajectory remains uncertain, with multiple factors contributing to its potential decline. The dollar's relentless rally, coupled with India’s domestic challenges, suggests continued volatility. Market watchers anticipate that the rupee will remain under pressure unless the dollar rally eases or the RBI intensifies its interventions.
As the global economic landscape evolves, investors should remain vigilant and adapt their strategies accordingly.
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