The depreciation of the Indian Rupee against the US Dollar has been making headlines recently, with the currency hitting a new low of 85.81 per dollar in intra-day trading. Market experts attribute this decline to heightened market activity and strategic shifts by the Reserve Bank of India (RBI).
According to Amit Pabari, MD at CR Forex Advisors, the surge in the rupee’s depreciation can be linked to the RBI’s forward positions, with $21 billion in short-side forward contracts set to mature in December and January. There is speculation that the RBI is not rolling over these maturing contracts, leading to a tighter dollar supply and an oversupply of rupees in the market.
The intervention by the central bank is seen as an attempt to manage the surge in import bill payments and curb excessive rupee depreciation. Despite this intervention, the rupee closed at a record low of 85.54 against the dollar on Friday.
Kunal Sodhani, Vice President at Shinhan Bank, points out that the weakening of Asian currencies could put the rupee at risk as RBI intervention may become shallow to maintain export competitiveness. Despite this, the rupee has only depreciated by 1.70% since the US election, making it one of the best-performing currencies among its Asian peers.
Looking ahead, experts predict that the rupee could trade within the range of 84.25 to 85.85 in the coming week. A reversal may occur if the currency sustains below 85.25, but until then, the pressure for rupee depreciation is expected to persist. The 85.85 level is seen as a strong resistance, while 85.05 acts as a base level for the rupee, according to Sodhani.
In conclusion, the current situation in the currency market underscores the impact of global economic factors on the Indian Rupee. The RBI’s interventions and market sentiment will continue to influence the rupee’s value in the coming days, making it essential for investors and traders to stay informed and adapt their strategies accordingly.
