The Indian rupee extended its losing streak for the fourth straight session on Wednesday, April 9, as it fell 30 paise to trade at 86.56 per US dollar in early morning trade. This persistent decline follows a steep fall of 50 paise on Tuesday, April 8, which marked its biggest single-day drop since mid-January.

Pressure from Global and Regional Currencies

The rupee’s weakness is largely attributed to the sharp depreciation of the Chinese yuan, which slumped to a record low in offshore markets on Tuesday. A weaker yuan often prompts similar moves in other Asian currencies, and this time was no different — most Asian currencies fell between 0.1% and 0.8%, dragging the rupee down with them.

Foreign Institutional Investors Exit Indian Markets

Another key reason behind the rupee’s slide is the sustained outflow of foreign funds from Indian equity markets. On Tuesday alone, Foreign Institutional Investors (FIIs) offloaded ₹4,994 crore worth of shares. April has already witnessed outflows exceeding $2.5 billion, underscoring the cautious stance adopted by global investors amid increasing global uncertainties.

Hedging Activity Rises Among Indian Firms

A foreign exchange trader highlighted that Indian corporates have ramped up hedging activities in anticipation of continued currency market volatility. This is indicative of broader concerns surrounding the global macroeconomic landscape, especially with the yuan facing devaluation pressures and investor confidence taking a hit.

US-China Trade Tensions Weigh on Sentiment

Fueling further instability in global currency markets is the renewed tension between the US and China. The imposition of a 104% tariff by US President Donald Trump on Chinese goods has sparked fears of a deepening trade war, unsettling investor sentiment across emerging markets.

As a result, emerging market currencies, including the Indian rupee, have borne the brunt of rising global risk aversion.

RBI’s Position on Rupee Devaluation

According to sources cited by Reuters, the Reserve Bank of India (RBI) may allow a weaker rupee if China continues to push down its currency to offset the effects of tariffs. This stance, if true, suggests that the RBI could be adopting a more flexible currency management strategy in the short term.

Crude Prices and Dollar Index Provide Some Relief

Interestingly, the rupee’s fall came despite supportive macro indicators. The dollar index was down by 0.59% to 102.09, while Brent crude prices dropped 3.6% to $60.50 per barrel. A weaker dollar and declining oil prices typically aid the rupee by reducing import costs, but the dominant drag from foreign investor outflows and yuan depreciation has overshadowed these benefits.

Opening and Intraday Movements

At the interbank foreign exchange market, the rupee opened at 86.52, weakened to 86.60, and then marginally recovered to 86.56. This volatile movement reflects the ongoing uncertainty and fragility in the broader currency and equity markets.

Emerging Markets Under Pressure

The cumulative impact of geopolitical tensions, especially the US-China tariff situation, along with yuan volatility and foreign fund pullout, has placed emerging markets under significant stress. Investors are fleeing to safer assets, leading to a broad-based selloff across EM currencies.

What Lies Ahead

In the near term, market watchers expect continued volatility for the rupee, especially if FIIs maintain their selling spree and the yuan continues its downward trajectory. Analysts are also closely monitoring RBI’s moves and any signs of intervention to stabilize the currency.

Until then, traders and investors are advised to remain cautious, particularly in sectors heavily impacted by foreign exchange movements, such as import-intensive industries, oil & gas, and capital goods.

Conclusion

The rupee’s slide to 86.56 against the dollar reflects a broader pattern of emerging market weakness driven by geopolitical uncertainty, currency pressures in Asia, and massive foreign capital outflows. While lower crude prices and a softer dollar could provide relief, the dominant narrative remains one of caution and risk aversion in the face of escalating global tensions.

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