Currency Under Pressure: Rupee Slides to 89.94 Against USD

On Jan 8, rupee depreciated by 7 paise to settle at 89.94. Throughout the session, the currency was seen swinging between 89.80 and 90.30. This swing reflects a classic tug-of-war between domestic optimism and global anxiety .

This rupee slide was majorly led by a surge in Brent crude to $60.47/barrel and a strengthening Dollar Index. The domestic equity markets witnessed a sharp retreat, compounding the slide. The Sensex shed 780.18 points as foreign institutional investors pulled out ₹1,527.71 Cr .

Despite these immediate headwinds, the MoSPI (Ministry of Statistics and Programme Implementation) has provided a considerable silver lining. It has projected a strong 7.4% GDP growth for the current fiscal year .

This GDP growth figure comfortably surpasses previous estimates of 6.3 to 6.8% (The Hindu). The currency has remained under siege from external factors, but the underlying economic engine continues to speed at a record pace. The question for the investors is: how will the rupee’s breach of the rupee vs USD level impact your short-term hedging strategies for export-heavy portfolios?

What’s Causing Domestic Jitters

Currently, the rupee is bearing the weight of the country’s balance sheets as well as geopolitical anticipation. The renewed trade barrier prospects and protectionist trade policy shifts are driving the market narrative.

When global markets perceive even a minor potential increase in tariffs from major trading partners, the ripples are immediately felt in emerging markets. Even a small rise in cross-border costs can disrupt low-margin industries.

The Indian export sector has been a pillar of recent growth. However, now, there is uncertainty around these policy changes. This has created a "wait-and-watch" atmosphere.

Foreign investors who are concerned with the corporate earnings impact of these tariffs are moving their capital towards safer, dollar-denominated assets. This has created a cycle where the fear of future trade friction is contributing to immediate currency depreciation.

Now, the currency’s resilience will depend on how quickly the diplomatic channels can restore a sense of stability to the trade outlook. Investors should assess whether their export-oriented holdings remain resilient amid these global trade uncertainties.

Domestic Strength

India’s latest growth estimates suggest that domestic consumption, infrastructure spending, and industrial activity are on a high-growth path.

The Indian currency is facing short-term volatility. Rising global energy costs continue to be a persistent challenge. As an economy that imports most of its crude oil requirements, any increase in oil prices puts direct pressure on the trade deficit.

This problem is related to "imported inflation." It is not just weighing the rupee down but also complicating the central bank’s task of managing interest rates.

The RBI’s (Reserve Bank of India’s) presence in the market is also an important factor in this equation. The RBI is managing liquidity and intervening strategically in the foreign exchange market. Thus, it is aiming to prevent sudden movements that could disturb investor confidence.

The government is pursuing high domestic growth while allowing free movement of foreign capital. As a result, the rupee must adjust naturally to balance these forces. The current depreciation acts as a "relief valve," helping the economy maintain its growth despite external pressures like rising US interest rates or higher oil prices.

Investors are now watching closely to see if strong domestic data can eventually help decouple the rupee from global commodity volatility.

A Strategic Outlook

The current journey of the rupee is reflecting a global environment displaying high stakes and shifting trade alliances. Currently, the geopolitical tensions, tariff fears, and capital flight are pulling the rupee lower.

The road ahead is likely to be marked by periodic bumps of volatility as the global trade order undergoes a structural realignment.

Source:

Scanx trade
The Hindu