Rupee sinks to record lows, flirts with 90 per dollar as RBI smooths volatility
India’s rupee extended losses to fresh records and edged toward the psychologically pivotal 90-per-dollar level, with thin liquidity, foreign outflows and a firm U.S. dollar keeping pressure on emerging-market FX. Traders report the Reserve Bank of India stepping in to curb excess volatility, but options markets increasingly price a test of 90 before year-end.
Market drivers
The rupee’s slide reflects a familiar macro mix: sticky U.S. yields, softer risk appetite across EM, and patchy foreign portfolio flows. Elevated energy costs and an uncertain trade backdrop have amplified demand for dollars from importers, while exporters have been cautious about selling, reinforcing one-way moves during quieter sessions. Dealers say the RBI’s playbook—smoothing sharp intraday swings via spot sales and managing forward premiums—has limited disorderly price action but not shifted the broader trend.
Key points
- USD/INR approaches 90: New record lows put the 90 handle within reach, a level watched for option barriers and stop clusters.
- Intermittent RBI activity: Dollar sales and liquidity management are slowing, not reversing, rupee depreciation.
- Flows skewed to safety: Risk aversion and uneven equity/debt inflows leave INR vulnerable to dollar strength.
- Volatility building: Front-end USD/INR options imply higher probability of a 90 test; gamma pockets may exacerbate moves.
- Policy in focus: Traders await the next RBI decision and global data for cues on rates, inflation, and the path of U.S. yields.
Policy watch: how far will the RBI go?
The central bank’s approach remains consistent: prevent disorderly moves rather than defend a fixed level. That typically entails intraday spot intervention, use of forwards to smooth premiums, and liquidity operations to steady money markets. A clean break and daily close above 90 would test how aggressively the RBI leans against the move, especially if it sparks broader FX contagion or destabilizes inflation expectations through imported price pressures.
Global context and risk sentiment
The macro backdrop favors the dollar. Higher-for-longer U.S. rates and resilient U.S. data keep the greenback supported, while global equities have struggled to extend gains. For EM FX, that combination often means weaker currencies, tighter financial conditions, and wider risk premia. Any moderation in U.S. yields or a decisive improvement in global risk appetite would offer INR some respite.
Technicals: the 90 pivot
From a technical perspective, 90 is a big round number and a crowded options strike. Market depth typically thins around such levels, which can produce sharp, stop-driven spikes. If USD/INR tags 90 and fails to hold on a closing basis, mean reversion toward prior breakout zones is possible. A sustained daily close above 90, however, could trigger momentum buying and force additional hedging from corporates and fast-money accounts, lifting implied volatility.
What to watch next
– India’s inflation and RBI meeting for hints on policy stance and liquidity management.
– U.S. yields, the dollar index, and incoming U.S. inflation/labor data for direction on the global rates impulse.
– Oil prices and India’s trade balance, given the rupee’s sensitivity to import bills.
– NDF pricing versus onshore spot: a widening basis can foreshadow pressure during the local session.
For traders, positioning around the 90 level is critical. Liquidity pockets, option barriers, and stop orders can produce outsized intraday moves—both during a break and on failed attempts. As ever, discipline on sizing and hedging remains key in a higher-vol regime, BPayNews notes.
FAQ
Why is the rupee falling now?
A firm U.S. dollar, elevated U.S. yields, and softer risk appetite are pressuring EM currencies. Uneven foreign inflows and steady importer demand for dollars add rupee-specific weakness.
Is the RBI defending 90 in USD/INR?
The RBI typically aims to reduce volatility rather than defend a specific level. It may sell dollars to smooth disorderly moves, but a durable trend shift depends on global rates, flows, and domestic fundamentals.
What happens if USD/INR breaks above 90?
A clean break and daily close above 90 could trigger stops and option-related hedging, lifting volatility and potentially extending gains. A failed break may invite mean reversion toward recent breakout areas.
Which data points matter most for the rupee this week?
Watch U.S. inflation and jobs data (for the dollar/yields), India’s inflation and RBI commentary (for policy and liquidity signals), and oil prices (for the import bill and inflation pass-through).
How do NDF markets affect onshore spot?
Offshore non-deliverable forwards often set the tone ahead of India’s open. A weaker INR in NDFs can translate into early onshore pressure, especially when local liquidity is thin.
Should corporates hedge now or wait?
Hedging decisions vary by exposure and risk tolerance. Many treasurers scale in hedges around key technical levels and higher implied vol, balancing protection with cost. Consult policy frameworks and market conditions before acting.
