The Indian rupee experienced notable weakness in Friday's trading session, decisively breaching the psychologically significant 90-per-dollar mark. The decline was driven by robust demand for US dollars from importers, particularly in the oil sector, coupled with thin market liquidity. This movement has intensified the market's scrutiny of the Reserve Bank of India's potential response to the currency's slide.
Session Details and Price Action
The domestic currency commenced the day around 89.95 against the US dollar. However, it failed to hold ground, closing the session at 90.20 per dollar. This represents a decline of 23 paise from its previous close of 89.97 on Thursday. During intraday trade, the rupee oscillated between a high of 89.92 and a low of 90.25. This closing level marks the currency's weakest finish in a fortnight.
Key Market Drivers and Faded Support
Early in the session, the rupee found some temporary support. This came from US dollar sales executed by state-run banks, a move often interpreted as a potential signal of central bank activity. However, this support proved short-lived. As the trading day progressed, demand for dollars from oil importers gathered significant momentum, overwhelming the initial buffers and pushing the currency lower.
Market participants are now keenly focused on the tolerance levels of the central bank regarding currency volatility. The scale, timing, and choice of instruments for any potential intervention by the RBI are under intense speculation. Traders are assessing tools such as:
- Direct foreign exchange (FX) interventions in the spot market.
- Execution of forex swap operations.
- Liquidity management measures to influence the rupee's direction.
Broader Context and Future Outlook
The rupee's movement was also influenced by global risk cues, which affect foreign investor flows into and out of emerging markets like India. The breach of the 90 level is seen as a decisive technical move, potentially setting the tone for near-term trading. Analysts suggest that the market will remain highly sensitive to any verbal or operational cues from the RBI regarding its comfort zone for the exchange rate. The interplay between domestic importer demand, central bank strategy, and international dollar strength will continue to dictate the rupee's trajectory in the coming sessions.
