The Indian rupee is expected to open with minimal change or a slight weakening on Thursday, December 18, as currency traders closely monitor the Reserve Bank of India's next move. This comes after the central bank launched a decisive intervention to stem the rupee's persistent decline against the U.S. dollar.
RBI Steps In to Break the Downward Momentum
On Wednesday, the Reserve Bank of India aggressively sold U.S. dollars in the foreign exchange market. According to bankers familiar with the action, the RBI's explicit goal was to push the dollar/rupee pair lower and disrupt a growing market sentiment that the rupee's fall was inevitable. The local currency had been under constant pressure from a combination of one-way positioning, hedging activity by importers, and momentum-driven dollar buying.
The central bank's forceful intervention proved effective. The rupee rallied past the psychologically significant 90-per-dollar mark on the interbank order matching system. This move represented the currency's most substantial single-day advance in two months, with the rupee settling at 90.38 against the greenback.
Market Awaits RBI's Follow-Through for Sustained Impact
The key question now is whether the RBI will provide sustained follow-through to its actions. One banker noted that such a continuation would be crucial to resetting market expectations. "In its absence, it (dollar/rupee) is likely to resume its upward drift," the banker cautioned. He recalled that the RBI has executed similar strategies earlier in the year, following up heavy intervention with another round of sizable dollar sales.
Another market expert pointed out that significant long dollar positions likely still exist within the system. One more substantial round of dollar sales by the RBI could be enough to flush out these positions, potentially solidifying the rupee's recovery.
Advisory to Importers and External Risk Sentiment
Anil Bhansali, head of treasury at Finrex Treasury Advisors, is advising his importer clients to utilize the pullback in the dollar/rupee pair. He recommends they see the RBI-induced weakness in the dollar as a tactical window to lock in hedges for their future foreign currency requirements. Bhansali emphasized that importers should treat any near-term softness in the dollar/rupee rate as a hedging opportunity, not necessarily as a signal of a lasting trend reversal for the rupee.
Meanwhile, broader risk sentiment offers little support for emerging market currencies like the rupee. While not the primary driver currently, a risk-off mood persists. Appetite for risk was dented by jitters in the technology sector, leading to a 1.8% slide in the Nasdaq Composite. Asian equity markets also drifted lower in response to the sell-off on Wall Street.
As of early indications, the 1-month non-deliverable forward market suggests the rupee will open in a range of 90.35 to 90.45 against the U.S. dollar on Thursday. The market's direction will heavily depend on the Reserve Bank of India's continued presence and strategy in the currency market.
