India rupee at risk of all-time low, leans on central bank for support

MUMBAI: The India rupee is poised to open weaker on Friday, with the imbalance between robust importer hedging and hesitant exporter flows making it vulnerable to a lifetime low and dependent on central bank support.

The 1-month non-deliverable forward indicated the rupee will open in the 89.40-89.42 range versus the US dollar, having settled at 89.3050 on Thursday, and within striking distance of last week’s all-time low of 89.49.

The Reserve Bank of India stepped in heavily at the beginning of the week in a bid to break the cycle of weakness that threatened to deepen after last week’s breakdown.

Its intervention briefly lifted the rupee back through the 89 handle, offering a short-lived reprieve. The relief, however, faded with persistent dollar demand from importers, hesitant exporter hedging and lacklustre portfolio flows eroding much of the RBI-spurred recovery.

The fact that the rupee is back under pressure despite the RBI’s support is noteworthy considering the softness in the dollar.

The dollar index is headed for its worst week in four months on mounting confidence that the Federal Reserve will deliver a third straight rate cut next month, a tailwind that would normally offer rupee some respite.

Fed funds futures now imply an 86% chance of a 25-basis point rate cut on December 10, up from about 40% just a week ago, according to the CME’s FedWatch tool.

“You don’t get this kind of this slow relentless push higher (on dollar/rupee) unless corporate flows are skewed and there is nothing to offset it,” a currency trader at a private sector bank said.

For speculators, there’s no macro trigger to chase USD/INR higher, he added.