The Indian rupee continued to slide for the second consecutive trading session on Tuesday (April 8), raising concerns over potential near-term volatility in the foreign exchange market. The fall was largely attributed to a weaker Chinese yuan, sustained dollar buying by importers, and growing global pressure on Asian currencies.

Opening Trends and Recent Movement

The rupee opened at 85.91 against the US dollar, down from 85.83 on Monday (April 7). This followed a sharp drop of 60 paise the previous day, when it slid from 85.23 on Friday (April 4). In total, the rupee has lost 68 paise over two trading sessions, marking its most significant two-day decline in recent weeks.

China’s Yuan Sparks Regional Currency Weakness

The current pressure on the rupee is being significantly influenced by external global cues, most notably the weakening of the Chinese yuan. On April 8, the People’s Bank of China (PBOC) set the yuan’s reference rate at 7.2038, the weakest level since September 2023. This move has been interpreted by traders as an early sign of devaluation, possibly in anticipation of increased US tariffs and other trade pressures.

The offshore yuan also weakened, sliding from 7.30 on Monday to 7.33 on Tuesday, amplifying bearish sentiment across Asian currency markets.

This ripple effect was immediately visible as other regional currencies such as the Thai baht, South Korean won, and Malaysian ringgit also declined.

RBI Stays Silent as Rupee Drops

While the rupee faced increasing pressure, traders noted the absence of intervention from the Reserve Bank of India (RBI), which in previous instances has stepped in to curb excessive volatility. However, on April 8, no significant RBI activity was observed, leaving the rupee to respond directly to global headwinds and domestic dollar demand.

The lack of central bank action has led to speculation that the RBI may allow more market-driven adjustments in the near term, especially as other global currencies adjust to broader economic developments.

Dollar Demand from Importers and FPIs Adds to Woes

Another key factor behind the rupee's weakness is the strong dollar demand from importers and foreign portfolio investors (FPIs).

Importers, particularly in sectors such as oil and electronics, tend to buy more dollars to cover payments during periods of currency stress, which further increases pressure on the rupee.

Additionally, FPIs have been pulling back from Indian markets, or redirecting investments into safer or more profitable avenues, thereby contributing to increased outflows and further dollar buying.

Outlook Remains Cautious with Expectations of Volatility

With a weaker yuan, limited RBI support, and continued foreign exchange demand, the short-term outlook for the rupee remains volatile. Traders and analysts suggest that unless some form of central bank intervention or external stabilizing event occurs, the rupee may hover at elevated levels or experience further drops.

Some experts believe that the RBI may eventually step in if the exchange rate breaches psychologically sensitive thresholds, such as 86 or higher. However, until then, market-driven dynamics are likely to dominate trading activity.

Global Context: The Role of US Tariffs and China’s Strategy

Behind China’s move to set a weaker yuan reference rate lies a broader economic strategy. With US policymakers signalling potential increases in tariffs and stricter trade measures, China may be pre-emptively devaluing the yuan to support its export competitiveness.

This has consequences for trading partners and competitors across Asia, as they may be forced to allow their currencies to depreciate to maintain trade balance and competitiveness.

India, being one of China’s largest trading partners, is especially vulnerable to such shifts, as currency volatility directly impacts trade margins, import costs, and inflationary pressures.

Key Takeaways for Investors and Businesses

• Importers should be prepared for higher dollar costs and consider hedging options to minimize risks.

• Exporters may benefit marginally from a weaker rupee, but regional currency competition could limit advantages.

• Retail investors and market participants should closely monitor RBI policy updates, global geopolitical events, and US economic indicators.

Conclusion: A Watchful Eye on the Rupee’s Trajectory

The Indian rupee’s continued weakness amid global currency turmoil and strong dollar demand is a reminder of the complex interplay between domestic and international financial factors.

Until stabilizing signals emerge — either through RBI intervention, easing of global trade tensions, or a correction in the US dollar — the rupee may remain under pressure.

Market participants must brace for heightened volatility, and economic policymakers may need to reassess strategies to safeguard India's financial stability in the evolving currency landscape.

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