The Indian rupee is poised to begin trading on Wednesday, December 3, hovering close to the psychologically significant level of 90 against the US dollar. Analysts indicate that fragile market sentiment and lopsided foreign currency flows are likely to negate any positive impact from a weaker American currency in the broader markets.
Rupee's Persistent Weakness and Key Levels
Market indicators suggest the rupee will open in a range of 89.86 to 89.92 per US dollar. This comes after the domestic currency weakened by 0.4% on Tuesday, closing at 89.87. During the session, the rupee touched a historic low of 89.9475 and even inched past the 90 mark on the interbank order-matching system after regular spot trading hours concluded.
This decline marks the fifth consecutive day of losses for the rupee, a downtrend that has persisted despite consistent intervention efforts by the Reserve Bank of India (RBI). A pivotal moment occurred when the rupee breached the 88.80 level, a threshold the central bank had staunchly defended for several weeks.
"The breach of 88.80 stripped away what had become a psychological and technical anchor for the market," explained a currency trader at a private sector bank. "This has effectively opened the door for further weakness." The trader added that moving past this level has made the rupee more susceptible to underlying pressures, including subdued capital inflows, consistent demand from importers, and a recent increase in speculative market positions.
Capital Flow Slump and Dollar Movement
The weakness in capital flows is starkly visible in official data. India's balance of payments for the September quarter showed net capital flows plunging to just $0.6 billion, a sharp drop from the $8 billion recorded in the previous quarter.
Meanwhile, the US dollar index experienced a dip on Tuesday, with the decline extending into Asian trading on Wednesday. This movement is attributed to growing market speculation that Kevin Hassett could be the next Chair of the US Federal Reserve. Comments from former President Donald Trump, who narrowed the choice from ten candidates "down to one" and referred to Hassett as "a potential Fed chair," fueled these expectations.
Financial markets perceive Hassett as having a more dovish stance on interest rates compared to the current Fed leadership, which put downward pressure on the dollar.
Key Market Indicators at a Glance
- One-month non-deliverable rupee forward: 90.08
- Dollar index: Down at 99.22
- Brent crude futures: Down 0.4% at $62.2 per barrel
- Ten-year U.S. note yield: At 4.08%
Foreign investment data showed mixed activity: foreign portfolio investors were net sellers of Indian equities worth $94.3 million on December 1, but they were net buyers of Indian debt, purchasing $132.9 million worth of bonds on the same day, according to NSDL figures.
The confluence of domestic outflows, importer hedging, and global monetary policy speculation continues to keep the Indian rupee under significant pressure near its record-low levels.
