 "Rupee remains under pressure, touches new low of 85.12 per dollar")
The rupee hit a new low of 85.12 per dollar on Monday due to month-end demand for dollars among importers and tracking weakening of the Chinese Yuan, said dealers. The rise in crude oil prices further weighed on the domestic currency.
The local currency had settled at ~85.02 per dollar following a choppy trade on Friday after touching ~85.11 per dollar before regaining lost ground against the greenback on the back of FTSE (Financial Times Stock Exchange) rebalancing inflow.
In the current calendar year (CY24), the rupee has depreciated by 2.24 per cent. In December so far, it witnessed 0.73 per cent depreciation.
The Reserve bank of India (RBI) intervened in the foreign exchange market via dollar sales, thereby avoiding further depreciation. India’s forex reserves have declined to a six-month low, highlighting the RBI’s timely interventions to mitigate excessive depreciation of the currency.
Meanwhile, despite the subdued trading volumes expected this week due to the holiday season, the Sensex reshuffle — marked by Zomato's inclusion — is projected to bring net inflows of $260 million, potentially providing some support to the Indian currency.
“Looking ahead, this week is expected to be relatively subdued due to the holiday season in key markets like the US and Europe, leading to thin trading volumes and reduced market volatility. The Dollar Index is likely to remain around its elevated level of 108, while EM (emerging market) currencies may continue to face headwinds in the near term,” said Amit Pabari, managing director (MD), CR Forex.
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Brent crude oil prices gained 0.41 per cent to reach $73.24 per barrel, supported by easing concerns over a potential US government shutdown and a softer US Personal Consumption Expenditures Price Index. The latter fuelled optimism about potential policy easing by the Federal Reserve.
The Federal Reserve cut interest rates by 25 basis points (bps) while maintaining a hawkish stance, signalling expectations of rising inflation. The central bank projected a 50 bps rate cut in 2025, followed by another in 2026. With 100 bps already cut in 2024, the Fed is likely to pause rate adjustments until mid-2026, with future decisions contingent on economic conditions post-President Trump’s inauguration on January 20.
“As we approach the month end, quarter end and calendar year end, we expect some gain in the rupee rates before weakness commences again in January,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.