Rupee Bounces Back From Intraday Weakness, Closes at 89.92 Against the Dollar

Rupee Recovers from Historic Low as Markets Attempt to Regain Balance

The Indian rupee staged a notable recovery on December 4, rebounding 52 paise from its intraday low to trade at 89.92 against the US dollar. This came after the currency slipped to a fresh record low of 90.42, extending its year-to-date weakness and reaffirming its position as Asia’s worst-performing currency in 2024, with an annual decline of 5.5 percent.

The sharp depreciation earlier in the day triggered concerns in financial markets, particularly among investors tracking the USD-INR trajectory. However, the afternoon reversal provided some respite, hinting at a combination of RBI’s selective interventions, profit-booking by traders, and global dollar softness aiding the short-term bounce.

A Divergence Between Strong Domestic Growth and Weak External Sentiment

The rupee’s fall comes at a time when India is reporting robust economic data. The country posted an impressive 8.2 percent GDP growth in the July–September quarter of FY26, reinforcing its status as the fastest-growing major economy.

However, this macro strength has not translated into currency stability. Analysts point out a clear divergence: India’s domestic growth remains strong, but external factors—from risk aversion to global monetary tightening—continue to weigh heavily on the rupee.

The weakening currency highlights the pressure from elevated crude oil prices, sustained foreign outflows in equities, and a still-resilient US dollar supported by cautious Federal Reserve guidance.

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Government Remains Unconcerned, Predicts Recovery in 2026

Despite the rupee’s slide past the psychological 90-mark, India’s Chief Economic Advisor V. Anantha Nageswaran offered reassurance. Speaking on Wednesday, he said, “I am not losing sleep over it.” According to him, the rupee’s depreciation has not impacted domestic inflation, and he expects the currency to recover in 2026 as macroeconomic conditions improve.

His comments suggest the government believes the depreciation is orderly, manageable, and primarily driven by global factors rather than domestic instability.

Market Polls Suggest Gradual Recovery, But Dependence on Trade Deal Remains Key

A Reuters poll of FX strategists indicated that the rupee may gain back some lost ground over the next three months, provided India and the US finalise their long-awaited bilateral trade agreement. The deal is expected to ease trade flows, improve investor sentiment, and potentially unlock more stable foreign inflows.

However, analysts also warn that any delay in the trade agreement could prolong weakness in the currency, especially in a market that is already sensitive to global risk trends.

Analysts Caution That Near-Term Pressure on Rupee Is Far from Over

While the intraday recovery brought temporary relief, currency experts remain cautious about the immediate outlook.

Rupee May Stay Weak in the 89.50–91.20 Range

Rahul Gupta, CBO of Ashika Group, noted that the rupee’s underperformance could continue in the near term. He expects the currency to trade between 89.50 and 91.20, particularly if crude oil prices rise and foreign investors maintain a risk-averse stance.

He added that a meaningful recovery will hinge on:

• Revival in foreign portfolio inflows

• Greater clarity on global rate-cut cycles

• Improvement in India’s export momentum

• Selective RBI interventions to maintain orderliness

Gupta believes that although the rupee is likely to stay weak, it will remain well-managed, avoiding disorderly volatility thanks to the central bank’s oversight.

Break Above 90 Suggests Momentum Still Favors the Dollar

Amit Pabari, Managing Director at CR Forex Advisors, offered a similar assessment, stating that the rupee’s breach of the 90-mark signals that pressure is still very much present.

“In fact, the move suggests that pressure will remain, with the pair potentially drifting toward the 90.70–91 zone in the near term,” Pabari said, pointing to strong dollar demand and a lack of immediate triggers that could lift the rupee sustainably.

Investors Eye Key Triggers That Could Shape Rupee’s Trajectory

For investors, the rupee’s behaviour will remain a critical macro indicator in the coming months. Key factors to watch include:

• The US Federal Reserve’s rate outlook and its impact on the global dollar index

• Crude oil price movements, especially during geopolitical tensions

• Foreign institutional investor (FII) flows, which have been volatile

• Progress on the India–US trade deal

• RBI’s stance on managing volatility

While the broader consensus suggests continued near-term weakness, the medium-term outlook could shift if global conditions improve and India continues to attract strong investment flows.

A Day of Volatility Underscores a Larger Trend

The rupee’s ability to recover intraday highlights the tug-of-war between global pressures and domestic resilience. However, experts agree that the currency remains vulnerable in the short term, even as India’s economic fundamentals stay robust.

For now, the rupee’s path will depend on global dollar strength, commodity prices, and investor risk appetite, with stability expected only once broader macro conditions begin to normalise.

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