Key Takeaways
- Indian rupee falls 0.1% to 95.74 per dollar.
- Dollar index rises over 1% since last US Federal Reserve rate hike.
- Analysts warn of potential misalignment with global financial conditions.
The Indian rupee ended the day modestly weaker, declining 0.1% to 95.74 per dollar from the previous session’s close of 95.59, following a broader decline in Asian currencies.
This depreciation came amid heightened expectations of further US Federal Reserve rate hikes, which have caused the dollar index to rise more than 1% since the last rate increase.
Analysts at ANZ highlighted that the US Federal Reserve has initiated rate hikes, and markets are now pricing in additional hikes, leading to concerns about India’s monetary policy misalignment with tightening global financial conditions.
The Indian rupee’s decline was also influenced by the dollar sales conducted by state-run banks, likely on behalf of the Reserve Bank of India, which helped limit the currency’s losses.
Traders noted that the central bank may have also conducted dollar-rupee sell/buy swaps to manage liquidity in the banking system, with the swaps concentrated in the January 2027 and October 2027 maturities.
Despite the dollar’s gains, oil prices remained below $100 per barrel, supported by improved Gulf crude supplies and optimism for a diplomatic resolution to the US-Israeli conflict with Iran.
The Indian rupee’s performance reflects the broader trend in Asian currencies, which fell 0.1% to 0.3% as investors monitored oil prices and Fed rate expectations.
Analysts at ANZ emphasized that if the Reserve Bank of India does not respond to the Fed’s rate hikes, India’s monetary policy could become misaligned with global financial conditions, making the rupee more vulnerable to global risk-off episodes.
