The Indian rupee weakened on Wednesday on the back of strong dollar bids related to importers’ month-end payments, while a decline in the cost of hedging against the currency’s decline added to the persistent headwinds troubling the currency.
The rupee was at 86.5850 against the U.S. dollar as of 10:00 a.m. IST, down about 0.1% on the day. The currency is hovering within touching distance of its all-time low of 86.6475 hit earlier in the month.
The renewed focus on tariffs had traders reversing some of the risk-off moves made on Monday as Chinese startup DeepSeek’s free open-source AI model challenged the widely held belief of the dominance of U.S. AI giants such as Nvidia and OpenAI.
The heightened demand to buy dollars at the daily reference rate published by the Reserve Bank of India (RBI), called the fix, troubled the rupee in early trading, traders said.
Meanwhile, a fall in dollar-rupee forward premiums due to the Reserve Bank of India’s measures to inject liquidity into the banking system could magnify pressure on the rupee amidst persistent portfolio outflows and jitters about U.S. President Trump’s tariff policies.
The 1-month dollar-rupee forward premium hit a more-than-one-month low of 15.50 paisa on Wednesday, nearly halving from the over-two-year peak of 28.25 paisa hit earlier in the month.
Similarly, the 1-year dollar-rupee implied yield has declined about 60 basis points from a peak of 2.74% hit earlier in the month.
Lower forward premiums can spur a pick up in hedging demand from importers and also cuts the cost of betting against the rupee, traders said.
The currency has declined 1.1% over January so far, the most among major regional peers.
Later in the day, the focus will turn to the Federal Reserve’s policy decision, due during U.S. market hours. The Fed is widely expected to keep rates unchanged and investors will keep a close eye on commentary from Fed Chair Jerome Powell.
The dollar-rupee pair is expected to trade between 86.20 and 86.80, with the latter acting as a strong resistance, said Amit Pabari, managing director at FX advisory firm CR Forex.