Rupee Breaks 90 Level, Posts Second Weekly Decline Amid Dollar Demand
The Indian Rupee decisively broke below the psychologically important 90-per-dollar mark, closing at 90.1950 with a 0.30% daily decline and marking its second straight weekly fall of 0.40%. Despite RBI intervention through state-run bank dollar sales, persistent demand from oil importers and thin liquidity conditions overwhelmed defense efforts, raising questions about intervention sustainability.
*this image is generated using AI for illustrative purposes only.
The Indian Rupee decisively broke below the critical 90-per-dollar mark on Friday, closing at 90.1950 and posting its second consecutive weekly decline amid persistent year-end dollar demand. The currency's movement highlighted the challenges facing the Reserve Bank of India's defense strategy as underlying dollar demand continues to outpace intervention efforts.
Trading Session and Market Dynamics
The rupee opened with modest strength at 89.93 and initially held above the 90 level, supported by dollar sales from state-run banks. However, the currency later slid through this psychological barrier and closed 0.30% weaker at 90.1950, marking its lowest close in two weeks.
| Trading Metrics: | Details |
|---|---|
| Opening Rate: | 89.93 |
| Closing Rate: | 90.1950 |
| Daily Decline: | 0.30% |
| Weekly Performance: | -0.40% |
| Previous Week: | -0.65% |
Heavy dollar demand from oil importers weighed on the currency throughout the session, while a U.S. holiday on Thursday thinned liquidity and amplified price movements. For the year-crossing week, the rupee fell 0.40% in thin trade, following the previous week's 0.65% decline.
RBI Intervention Strategy Under Pressure
Despite clear signs of Reserve Bank of India intervention through state-run bank dollar sales, the central bank's defense of the 90 level proved insufficient against sustained market pressure. The perception that the RBI wants to prevent a break of 90 - a level that came into focus in the final sessions of the year - has strengthened among market participants.
"Markets will watch closely for signals on how tolerant the RBI remains of the currency moves, scale and timing of its interventions, and the use of instruments such as FX swaps and liquidity operations," said Kunal Sodhani, head of treasury at Shinhan Bank India. He noted that the currency's path will largely be determined by external forces and the RBI's response.
Persistent Dollar Demand Factors
Market participants have continued to test the 90 level, indicating that underlying demand for dollars remains robust despite RBI presence. Several factors contributed to the sustained dollar pressure:
| Demand Drivers: | Impact |
|---|---|
| Oil Importer Demand: | Heavy dollar purchases throughout session |
| Thin Liquidity: | Amplified currency movements |
| Year-end Flows: | Persistent structural demand |
| Regional Weakness: | Most Asian currencies declined |
The risk of a wider move past 90 remains on the table, with traders noting that most Asian currencies were on the back foot, offering little support to the rupee. The combination of structural dollar needs and reduced market liquidity created a challenging environment for currency stability.
Market Outlook and Intervention Sustainability
The rupee's decisive break below 90 raises questions about the sustainability of the RBI's defense strategy. Market participants expressed concerns about whether intervention efforts can withstand continued dollar demand pressure, particularly given the thin trading conditions that have characterized recent sessions.
The currency's performance reflects broader challenges facing emerging market currencies amid persistent dollar strength and structural demand imbalances that continue to test central bank intervention capabilities.
16
