Indian Rupee Weakens Despite Positive Asian Cues, Importer Dollar Demand Weighs

The Indian rupee declined against the U.S. dollar on Monday, bucking the trend in Asian currency markets, as strong demand for dollars from foreign banks and importers outweighed the positive sentiment driven by China’s economic stimulus measures.

The rupee was trading at 83.7850 per U.S. dollar, down 0.1% on the day. Traders attributed the weakness to robust dollar bids from London-based and New York-based banks, primarily driven by importer demand for dollars.

While the rupee is poised for its first monthly gain since June, it has lagged behind its regional peers, which have appreciated between 0.3% and 5.4% this month.

“The rupee’s recent appreciation has reversed, pushing it back toward its typical trading range,” said Amit Pabari, managing director at FX advisory firm CR Forex. “This is primarily due to month-end dollar demand from importers and active currency management by the Reserve Bank of India (RBI).”

The rupee had reached a near three-month high of 83.4350 earlier in September but has since given up those gains. Dollar-rupee forward premiums also edged higher, with the one-year implied yield rising to 2.40%, approaching its highest level since May 2023.

Investors are focusing on upcoming remarks by Federal Reserve Chair Jerome Powell, seeking further guidance on the trajectory of U.S. interest rates. Interest rate futures currently suggest a 75-basis point reduction in U.S. rates over the course of 2024, with the market pricing in a near-even probability of a 50 or 25 basis point cut in November.

Key Takeaways:

• The Indian rupee weakened against the U.S. dollar, despite a positive sentiment in broader Asian currency markets.
• Strong dollar demand from foreign banks and importers exerted downward pressure on the rupee.
• The rupee has lagged behind its regional peers in recent weeks.
• Investors are focused on upcoming remarks from Federal Reserve Chair Jerome Powell for clues about the future direction of U.S. interest rates.

The Indian rupee’s near-term performance will likely be influenced by the interplay between importer demand for dollars, the RBI’s currency management strategies, and global factors such as the direction of U.S. interest rates and investor risk appetite.