The Indian rupee (INR) saw a slight downswing on December 21 as it faced pressure stemming from a year-end surge in demand for the US dollar (USD) from importers.
India’s national currency was trading at $83.24 per dollar at the time of publication, down by less than 1% from its previous close of $83.26.
What’s weighing on INR?
The Indian rupee came under pressure on Thursday, December 21, as increasing demand for US dollars and risk aversion triggered by a sharp sell-off in global equities limited the upside in exotic currencies.
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Notably, importers’ appetite for the greenback is expected to stay strong heading into the final days of 2023, a foreign exchange (Forex) trader at a state-backed bank noted.
“Mostly people square their positions at this time, hence dollar demand will be there.”
– the trader added.
Additionally, the rupee was also hit by diminished interest in risk assets as rallies in global stock markets faced a setback. After staging a multi-day winning streak amid growing expectations of Federal Reserve’s rate cuts in 2024, the S&P 500 recorded its worst session in almost three months on December 20, erasing $600 billion of its market cap in two hours.
Some analysts attributed the dip to an “overbought market,” highlighted by a $20.8 billion single-day inflow into the SPY ETF on December 15, the largest since the dot-com bubble in 2000.
Forex analyst’s comments
In the wake of its recent restricted performance, investors will be closely monitoring the rupee’s current levels to see if the currency will fall and sustain below $83.20 in the short term, said Arnob Biswas, head of foreign exchange research at SMC Global Securities.
The local currency is expected to retain a slight appreciation bias above this level, however, further downside could push INR back to the $83.30-$83.40 range, the analyst added.
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