Rupee Extends Slide to Fresh All-Time Low as Trade Tensions and Importer Demand Intensify
The Indian rupee continued its downward trajectory on December 12, hitting a new record low of 90.56 against the US dollar, weighed down by strong importer demand for dollars, global risk aversion, and persistent foreign portfolio outflows. The currency breached its previous all-time low of 90.4675 recorded just a day earlier, reflecting growing pressure on emerging market currencies amid escalating trade uncertainties.
Sentiment in the currency markets has remained fragile due to the absence of progress in a trade deal between India and the United States, even as steep U.S. tariffs on Indian goods continue to disrupt export demand. Forex traders noted that aggressive dollar purchases from importers, combined with a firm U.S. dollar index, have intensified selling pressure on the rupee.
Intraday Volatility Deepens as Rupee Opens Weak and Slips Further During Session
At the interbank foreign exchange market, the rupee opened on a weaker note at 90.43, extending its decline from the previous session. It later slipped to an intraday low of 90.56, marking a 24-paise drop from its prior close. By late afternoon, the rupee was trading at 90.4650, down 0.1% on the day.
Concurrently, the US dollar index, which measures the dollar’s strength against six major currencies, edged slightly higher to 98.37, further pressuring emerging market units. Rising global prices of precious metals have also driven up dollar demand from importers, particularly in sectors dependent on gold and commodities.
Data from PTI indicated that aggressive dollar buying from importers, combined with cautious exporter activity, played a critical role in Thursday’s sharp depreciation.
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Rupee Emerges as Asia’s Worst-Performing Currency in 2024
The steep decline has made the rupee Asia’s worst-performing currency this year, with a near 6% year-to-date fall against the U.S. dollar. Analysts attribute this weakness to multiple factors, including higher U.S. tariffs of up to 50% on Indian exports, which have reduced competitiveness in India’s largest export market.
The elevated tariff regime has not only weakened export revenues but also diminished the attractiveness of the Indian equity market for foreign investors, contributing to sustained portfolio outflows.
On December 11, the rupee had already plunged 38 paise to close at 90.32 per dollar—its previous record low—highlighting the rapid pace at which the currency has depreciated this week.
Trade Tensions Add to Currency Pressure as Modi–Trump Talks Fail to Deliver Breakthrough
The currency market remained focused on ongoing trade negotiations between India and the United States. Prime Minister Narendra Modi said on December 11 that he had spoken with U.S. President Donald Trump, reviewing progress in bilateral ties and discussing key economic concerns. However, the absence of concrete relief on tariffs continues to weigh on investor sentiment.
Analysts warn that unless the U.S. softens its tariff stance, the rupee may remain under sustained pressure.
Dhiraj Nim, Economist and FX Strategist at ANZ, noted:
“The rupee weakness has further to go if tariffs are here to stay. Expectations are currently one-sided, explaining importer demand while exporters remain missing, alongside pressure from portfolio outflows.”
He added that the Reserve Bank of India (RBI) might allow the rupee to weaken in a “calibrated manner” to maintain market stability without aggressively defending specific levels.
RBI’s Real Effective Exchange Rate Signals Undervaluation of Rupee
The RBI’s trade-weighted Real Effective Exchange Rate (REER) for October stood at 97.47, a reading below 100 that indicates the rupee is relatively undervalued compared to the currencies of key trading partners. While an undervalued currency can support export competitiveness, it also heightens import costs—especially for commodities priced in dollars.
According to currency analysts, the undervaluation suggests some buffer for the rupee, though external risks continue to dominate near-term movement.
Daily Trading Range Reflects Continued Caution Ahead of Key Delegation Talks
Market participants expect the rupee to trade within a tight range of 90 to 90.60 in the near term, with traders closely monitoring the RBI’s stance and the outcome of trade negotiations.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, said:
“For the day, the range of 90 to 90.60 should be honored with a close watch on the RBI. Today is also the last day of talks between the Indian and visiting American delegation, and we hope a deal is announced after that.”
A successful conclusion to the talks could offer temporary relief to the rupee, though analysts caution that global macro pressures remain substantial.
Persistent Outflows and Dollar Strength Add to Near-Term Downside Risks
Foreign institutional investors have been net sellers in recent weeks, further weighing down the currency. Coupled with a firm U.S. dollar and rising geopolitical tensions, the outlook for the rupee remains challenging.
While RBI intervention has helped curb excessive volatility, traders believe the central bank is unlikely to aggressively defend any specific level unless depreciation becomes disorderly.
For now, the combination of aggressive importer dollar demand, strong U.S. tariffs, sustained portfolio outflows, and uncertain trade negotiations continues to shape the rupee’s downward trajectory.
