Donald Trump’s victory in the US presidential election has sparked concern in the Forex market, with the Indian rupee set to open the week at record lows.
The Reserve Bank of India (RBI) is expected to intervene to support the currency as concerns over US trade policies have pressured Asian currencies. At the time of publication, the Indian Rupee is trading at 84.40.
Chart of the Indian Rupee in the last 5 days. Source: Google Finance
Regional pressures and the role of the Reserve Bank of India
Asian currencies are experiencing losses, led by the Thai baht, which falls 0.5%, and concerns about possible trade tariffs affect key currencies such as the Chinese yuan. Despite China’s fiscal stimulus measures, the offshore yuan has shown fluctuations, highlighting the uncertain sentiment in the region.
The strength of the dollar, reflected in the dollar index close to 105 points, has also weighed on the Forex market, as US bond yields continue to rise following Trump’s victory, further boosting the value of the dollar and adding pressure to emerging currencies.
Impact of investment flows and expectations for the Rupee
In addition to geopolitical uncertainty, the outflow of foreign capital from the Indian stock market has significantly affected the rupee. So far in November, foreign investors have withdrawn nearly $2.5 billion from Indian stocks, following an outflow of $11 billion in October.
According to Societe Generale, these outflows continue to be a determining factor for the trajectory of USD/INR.
A local banking trader has mentioned that the RBI is likely to intervene to contain a sharp fall in the rupee, which could keep the currency range-bound. However, they warn that given the current pressure, the rupee could hit 84.50 against the dollar this week.
Expectations in the Forex market in the face of regional volatility
With the possibility of higher US trade tariffs and a strengthening dollar, Asian currencies face an uncertain outlook. The strength of the US monetary policy could increase pressure on currencies such as the rupee and yuan, as the RBI remains vigilant to protect the Indian economy in an environment of global volatility.
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