The Indian rupee dropped to its lowest level in a month as market traders reduced their long positions and importers increased demand for dollars, putting additional pressure on the currency.
“Rupee Hits Monthly Low as Traders Unwind Positions and Importers Snap Up Dollars”
“On October 5, 2018, in Ahmedabad, India, a customer gave a 50-rupee note to a fuel station attendant. Photo: Reuters.
“The Indian rupee recorded its steepest decline in a month on Monday, slipping past 88 against the U.S. dollar as traders reduced long positions and ongoing importer demand for dollars added pressure.
“The rupee ended the day at 88.2450 per U.S. dollar, slipping 0.4%, its sharpest single-day drop since September 23.”
“Last week, repeated actions by the Reserve Bank of India supported the rupee above the 88 level, but traders noted that such intervention eased on Monday. A foreign bank trader observed that although state-run banks were selling dollars, the activity was not concentrated at any particular rate.”
According to a trader, the sharp movement in the USD/INR exchange rate on Monday was largely driven by extensive short-covering after the pair climbed above the 88-mark. As positions were unwound, the rupee experienced a noticeable correction against the U.S. dollar. At the same time, another trader from a state-run bank highlighted that persistent dollar demand from importers—including major domestic oil firms—added further pressure to the local currency. These combined factors contributed to the rupee’s one-day decline, which was the steepest it had seen in recent weeks.
Despite Monday’s fall, the rupee has generally performed better than many of its regional counterparts during October. Market observers attribute this relative strength to the proactive measures taken by the Reserve Bank of India earlier in the month. The central bank’s interventions, which involved substantial support to the currency, helped prevent the rupee from slipping further toward record lows. Analysts noted that such steps created a buffer for the rupee, enabling it to weather external pressures such as higher global demand for the dollar and domestic import requirements.
Traders also pointed out that, while intervention continues to play a role, the pattern of state-run banks selling dollars on the market has become less concentrated around a specific rate, suggesting a more dispersed and cautious approach. This nuanced dynamic—short-covering, importer demand, and measured central bank support—has collectively shaped the rupee’s movement in recent trading sessions.
In summary, although the rupee experienced a notable setback on Monday, its overall performance in October reflects a combination of market corrections and policy measures that have helped stabilize the currency amid volatility, keeping it stronger than many of its Asian peers.
In international currency markets, the U.S. dollar index remained largely stable, holding at 98.8, reflecting steady demand for the greenback amid ongoing global economic developments. The relative calm in the dollar index came as investors monitored geopolitical and trade developments closely, weighing their potential impact on currency valuations worldwide. Meanwhile, the offshore Chinese yuan strengthened to a one-month high, buoyed by optimism surrounding ongoing trade discussions between the United States and China. Analysts noted that the apparent progress in these negotiations has provided a boost to the yuan, signaling renewed investor confidence in the potential easing of trade tensions that have been affecting global markets for months.
In the context of India, developments in bilateral relations with the United States have also captured attention in financial circles. Last week, a senior official from the Indian government indicated that a trade agreement between India and the U.S. is “very near,” suggesting that the two countries are on the verge of finalizing terms that could have significant implicati
ons for commerce and investment flows. Market participants are closely watching these talks, as a successful deal could further strengthen trade ties and potentially support the Indian rupee by encouraging increased investment and smoother export channels.
The combination of these international and bilateral developments has contributed to a dynamic environment for emerging market currencies. While the dollar has remained steady in the face of these changes, currencies like the yuan have seen tangible gains when positive trade signals emerge. For India, progress in talks with the United States could similarly serve as a catalyst for investor optimism, although analysts caution that concrete outcomes and formal agreements are needed before any significant market reaction can be expected.
Overall, the currency landscape is being shaped by a mix of stability in the dollar, optimism in China-U.S. trade talks, and anticipation of a potential India-U.S. trade pact, creating a nuanced environment for traders and policymakers alike.
