The Indian rupee plummeted to a historic low on Tuesday, closing at its weakest level on record, driven down by a broader decline in Asian currencies and robust dollar demand in the non-deliverable forwards (NDF) market, traders reported.
The rupee touched an all-time low of 83.96 per U.S. dollar before settling at 83.9525, a 0.1% drop from the previous session’s close of 83.8450. This decline underscores the mounting pressure on the rupee due to concerns about a potential U.S. economic slowdown and the unwinding of carry trades that had leveraged the Chinese yuan to finance long positions on the rupee.
Despite these pressures, interventions by the Reserve Bank of India (RBI) across the NDF, spot over-the-counter (OTC), and futures markets have helped mitigate volatility. Traders noted that state-run banks sporadically sold dollars during Tuesday’s session, likely acting on behalf of the RBI, which helped contain the rupee’s weakness.
“The RBI’s strategic interventions have played a crucial role in capping the rupee’s decline,” commented a foreign exchange trader at a private bank.
The dollar index rose by 0.2% to 103.1, reflecting a stronger dollar, while most Asian currencies weakened, led by a more than 1% drop in the Malaysian ringgit.
In parallel, dollar-rupee forward premiums eased slightly but maintained most of their recent gains, following a surge to a 14-month high on Monday. Traders attributed the rise in forward premiums to increased corporate hedging demand, arbitrage opportunities between onshore and NDF markets, and a general decline in U.S. yields.
Treasury yields recovered after economic data and remarks from Federal Reserve officials alleviated fears of a U.S. slowdown. The 10-year U.S. bond yield climbed 6 basis points to 3.84%.
“Unless we see a surprise in the U.S. Consumer Price Index (CPI) next week, the appeal of USD rates seems diminished, and we anticipate a softer dollar against pro-cyclical currencies once the current volatility subsides,” ING Bank stated in a note.
As the rupee faces continued pressure, market participants will be closely watching upcoming economic indicators and central bank actions to gauge future movements.