The Indian rupee is expected to open flat to slightly lower on Wednesday, with traders expecting the currency to gradually weaken in the near term as a hawkish Federal Reserve and expectations surrounding Donald Trump’s second term as president Americans keep the dollar in the spotlight.
The one-month non-deliverable futures contract indicates that the rupee will open at 85.62-85.63 against the US dollar, compared to its previous close of 85.6150.
The local unit hit its sixth consecutive closing record on Tuesday, pressured by a decline in its regional peers.
The rupee fell for the seventh consecutive year in 2024, largely due to multiple headwinds in the final quarter of the calendar year.
Regional currencies were mostly weaker, with several markets closed for the New Year holiday, while the Dollar Index hovered near its highest level in more than two years.
The prospect of the Fed keeping interest rates higher for longer, as well as expectations for policies to be implemented by U.S. President-elect Donald Trump, have boosted the dollar and US bond yields.
Meanwhile, the rupee came under additional pressure from local headwinds, including slowing growth in India and widening trade deficit.
“The rupee is likely to remain on a steady depreciation trajectory,” said Abhishek Goenka, managing director at currency consultancy IFA Global.
“We may see a conscious, deliberate and controlled correction of overvaluation (of the rupee) to support growth,” Mr Goenka said.
The rupee’s 40-currency-weighted real effective exchange rate, which measures its competitiveness, stood at 108.14 in November, indicating the currency was overvalued by about 8%.
The relative overvaluation of the rupee is a potential drag on Indian exports. Operators will also be attentive to any potential changes in the Reserve Bank of India’s foreign exchange market intervention strategies by 2025, under the leadership of its new governor.
KEY INDICATORS:
** One-month non-deliverable rupee forward exchange rate at 85.89; one-month onshore forward premium at 27 paisa.
** Dollar Index at 108.4
** Brent up 1.1% to $74.8 per barrel
** Ten-year US bond yield at 4.57%.
** According to NSDL data, foreign investors sold $187.1 million worth of Indian stocks on December 30.
** According to NSDL data, foreign investors sold $125.3 million worth of Indian bonds on December 30.
