The Indian rupee logged its worst day in three weeks on February 25. Dragged by weakness in regional peer currencies, importer hedging and US dollar demand related to the expiry of the non-deliverable forward contracts causing month-end interest among importers, the rupee continued to sink amid the growing uncertainty over US trade tariffs.
The rupee settled at 87.21 to the US dollar, down from 86.6950 in the previous session. It slipped 0.6 percent on the day, its biggest single-day fall since February 5. At the interbank foreign exchange market, the rupee opened weak at 86.83 and kept losing ground throughout the day before settling lower by 47 paise over its previous close.
The rupee pared some losses as the RBI likely intervened to support the currency after it dropped due to demand for the dollar related to derivatives expiry. According to forex traders, elevated dollar against major crosses and sustained foreign institutional outflows also contributed to the decline in the rupee's value.
The dollar index, which gauges the dollar's strength against a basket of six currencies, rose 0.04 percent to 106.64 on Tuesday. The rupee settled at 86.72 on Monday. India's currency markets will remain closed on Wednesday due to Mahashivratri. However, US stock markets will be open for trading.
Amit Pabari of CR Forex, said, “A large number of offshore forward contracts were set to expire on Tuesday, requiring traders and investors who engaged in currency deals outside India to settle them. This created a strong demand for the US dollar, putting additional pressure on the rupee.”
According to forex traders, the dollar demand, importer hedging, and weak Asian cues provided little room for appreciation. Traders said expectations of strong RBI interventions have reduced speculative positioning against the rupee. This has also improved India's forex reserves in recent weeks.
"Meanwhile, the RBI conducted a $10 billion buy-sell swap to address the persistent liquidity deficit in the banking system. This liquidity infusion has increased the rupee supply, contributing to its decline," added Amit Pabari.
The dollar index recovered to 106.79 after a more than two-month low of 106.35 on Monday. Asian currencies were lower, and the risk appetite soured after worries over US tariffs returned. US President Donald Trump restricted Chinese investments in strategic areas and also said Canada and Mexico tariffs will start next week, raising worries over a trade war.
Investors had largely hoped that negotiations would forestall the threat after Trump had previously agreed to a 30-day pause on the tariffs. In February 2025 alone, foreign investors sold Indian shares worth nearly $3 billion.
Rahul Kalantri of Mehta Equities expects the rupee to remain volatile, and the pair could trade in the range of 86.65-87.70 this week.
“Crude oil prices remained elevated amid US tariffs on Iran, which pushed oil demand higher. The dollar index at 106.65$ also added to the pressure on the rupee,” said Jateen Trivedi of LKP Securities.
Experts noted that the currency faces a risk of weakness. "With continued capital outflows and rising crude prices, rupee weakness may persist. Support is seen near 87.45, while resistance remains at 86.85. Market focus remains on global risk sentiment, oil price trends, and central bank policy signals," added Trivedi.
(By arrangement with livemint.com)
