The Indian rupee, after a relentless slide to a fresh lifetime low, is expected to find a temporary pause in its downward movement on Wednesday. The currency's rapid depreciation is likely to attract improved two-way trading interest, while a decline in the dollar index to a two-month low could offer some marginal support.
Rupee's Record Slide and Opening Levels
The local currency had settled at 91.0275 against the U.S. dollar on Tuesday, after falling 0.3% to hit an all-time low of 91.0750 during the session. This marked the fourth consecutive day where the rupee set a new record low, having depreciated by more than 1% over that short period. The sharp move highlighted the intense pressure on the currency, driven by heavy dollar demand linked to Non-Deliverable Forward (NDF) maturities and a notable lack of dollar supply in the market.
Indications from the 1-month non-deliverable forward market suggested the rupee would open in the range of 90.96 to 91.02 per dollar. For the month so far, the Indian rupee is down 1.8%, making it the worst-performing major Asian currency. In contrast, several regional peers have appreciated this month, while others have seen only minor declines.
Market Sentiment and External Factors
A currency trader at a Mumbai-based bank noted that after the "heavy adjustment" witnessed in the rupee, two-way interest should improve from current levels. He added that the drop in both the dollar index and oil prices should "lend a hand" to the rupee, though he cautioned that these external cues haven't held much sway recently in a market that remains intensely driven by specific capital flows.
On the global front, the dollar index was hovering near a two-month low on Wednesday. Recent U.S. jobs data for October and November did little to alter market expectations of two potential Federal Reserve rate cuts next month. U.S. non-farm payrolls increased by 64,000 in November, while the economy lost 105,000 jobs in October. Analysts at Morgan Stanley stated that the jobs report provided very few clear signals and failed to clarify expectations for Fed policy moves in 2026.
Oil Prices and Capital Flows
In commodity markets, oil prices declined on Tuesday, with Brent crude futures slipping below $60 per barrel for the first time since May. Prices saw a slight uptick during Asian trading hours after U.S. President Donald Trump ordered a complete blockade of all sanctioned oil tankers entering and leaving Venezuela.
Data on foreign investor activity showed a net positive flow into Indian equities. Foreign institutional investors (FIIs) purchased a net $63.8 million worth of Indian shares on December 15, according to NSDL data. In the debt market, they bought a net $6 million worth of Indian bonds on the same day.
Key market indicators as of Wednesday:
- The one-month non-deliverable rupee forward was at 91.30/91.40.
- The onshore one-month forward premium stood at 29.5 paise.
- The dollar index was up slightly at 98.29.
- Brent crude futures were up 1.2% at $59.6 per barrel.
- The yield on the ten-year U.S. Treasury note was at 4.16%.
