The Indian rupee declined for the fifth consecutive session, closing at 87.68 against the dollar - its lowest level in three weeks. This development comes as the US Department of Homeland Security outlined procedures to implement an additional 25% tariff on Indian goods starting Wednesday.

Impact on Indian Exports

The new tariffs could result in duties of up to 50% for Indian exporters, potentially affecting 55% of India's $87.00 billion merchandise exports to the US. This move has raised concerns about the impact on India's export sector and overall economic growth.

Currency Market Dynamics

The rupee's decline was partially offset by dollar sales from banks, likely on behalf of the Reserve Bank of India (RBI). Currency analyst Dilip Parmar noted that the rupee faces weak bias due to dollar demand-supply imbalance and expects support at 87.90 with gains capped at 87.25.

Notably, the currency came close to its lifetime low of 87.95 hit in February, highlighting the severity of the current pressure on the Indian currency.

Regional Trade Implications

Exporter groups estimate that the tariff hikes could benefit competitors like Vietnam, Bangladesh, and China, potentially reshaping trade dynamics in the region.

Factors Contributing to Rupee's Decline

1. US Tariff Announcement: The confirmation of the additional 25% tariff on Indian imports has eliminated hopes of a compromise between the two nations.

2. Dollar Demand-Supply Imbalance: The currency market is experiencing an imbalance that is putting pressure on the rupee.

3. Global Competitiveness: The tariff hikes may give an advantage to India's competitors in the global market.

Outlook

As global trade tensions escalate, market participants will be closely monitoring further developments that could impact the rupee's trajectory in the coming days. The RBI's potential intervention and the government's response to these tariffs will be crucial factors to watch.

The Indian rupee declined 0.30% on Friday, closing at 87.53 against the dollar, marking a 0.02% weekly loss. This depreciation comes amid increasing demand for the greenback and ongoing volatility in the currency markets.

Weekly Performance

The currency experienced significant volatility throughout the week, initially strengthening above 87 on Tuesday due to diplomatic talks between US, Russian, and Ukrainian presidents, along with proposed Indian government tax cuts. However, concerns over US tariffs on Indian goods scheduled for August 27 and criticism over Russian oil purchases pressured the currency lower.

Factors Influencing the Rupee

Several factors are currently at play in the currency market:

1. Rising Dollar Demand: Increased demand for US dollars, particularly from importers and a public sector bank, has been a primary driver of the rupee's depreciation.

2. Strengthening Dollar Index: The dollar index rose 0.14% to 98.74, approaching the 99-mark ahead of Federal Reserve Chair Jerome Powell's Jackson Hole speech. This put additional pressure on the rupee.

3. Crude Oil Prices: A marginal decline in oil prices provided some relief, as lower oil prices typically benefit the rupee, given India's status as a major oil importer.

4. Foreign Institutional Investors (FIIs): Despite the rupee's decline, FIIs remained net buyers in the Indian equity market, which helped prevent steeper losses for the rupee.

5. Domestic Equity Markets: The Indian stock markets opened lower, potentially contributing to the pressure on the rupee.

Market Sentiment and Trade Tensions

Traders are closely watching for Fed Chair Jerome Powell's speech at the Jackson Hole Symposium, which could provide insights into future US monetary policy and potentially impact currency markets.

Adding to market uncertainty are potential additional US tariffs on Indian exports. The possibility of a 25% tariff increase scheduled for August 27 has raised concerns and could further influence the rupee's trajectory.

Asian Currency Performance

Most Asian currencies traded lower, with the Taiwan dollar and Indonesian rupiah leading losses, while the Korean won and Philippine peso gained in intraday trading.

As global economic factors continue to evolve, the rupee's performance will likely remain subject to these various domestic and international influences in the near term.