The Indian rupee came under intense pressure in offshore markets after the one-year non-deliverable forward (NDF) contract briefly touched 100 per dollar, raising concerns about the currency’s near-term outlook. The contract later settled around 96.8 in spot-equivalent terms, according to market data cited by traders.
The sudden spike in the offshore forward market comes amid growing concerns among international investors about the rupee’s future. Analysts attributed this to an overall surge in demand for the dollar amid rising tensions and a withdrawal of foreign investments from Indian stocks.
The offshore Non-Deliverable Forward (NDF) market is outside India and therefore tends to react quickly to events happening elsewhere in the world. Although the rupee hasn’t yet hit the 100 level in the onshore spot market, its weakening trend can be gauged from forward pricing.
Currency traders highlighted that the disparity between forward pricing in the offshore market and the domestic spot price underscores investors’ hedging concerns.
The US dollar is still strong against emerging-market currencies amid expectations that US interest rates may remain elevated for some time. US higher interest rates tend to attract foreign investment towards the country in general, which puts the currencies under pressure, including the rupee.
Another factor has been the rise in oil prices. The fact is that India imports more than 80 percent of the crude oil it requires, so any increase in oil prices would negatively affect the rupee, along with a strong dollar.
According to market players, foreign institutional investors have continued to reduce their Indian equity exposure in recent sessions.
Also Read: Stock Market Update: Nifty 50, Sensex Likely to Open Lower As Rupee Hits 96.86
Despite all the turbulence witnessed in the offshore market, industry insiders anticipate continued intervention by the Reserve Bank of India to avert any sudden shifts in the local currency market. According to analysis, the Reserve Bank of India has often resorted to using its forex reserve to avert volatility in the rupee.
According to analysts, the RBI would not permit any significant devaluation unless the global situation worsened.
The rupee’s performance over the next few weeks will be influenced by the dollar, crude oil prices, and actions by major central banks, especially the US Federal Reserve.