The Indian rupee strengthened by 15 paise to open at 86.49 against the US dollar on Wednesday, after closing at 86.64 on Tuesday.
The rupee had been on a declining trajectory in recent days, dipping to an all-time low of 86.6 against the greenback. However, the pace of this fall has been more gradual compared to other global currencies, particularly since September 26, when China initiated a stimulus package and Indian markets hit all-time high valuations.
Market watchers are now projecting the rupee could reach 87.50, especially with the expected economic shifts as President-elect Donald Trump's administration takes office. Trump's promise of new trade tariffs is seen as a factor that could prompt further adjustments in global currencies. It seems that there is limited room for regulators to defend their currencies from such pressures.
On Tuesday, the rupee ended at a record closing low, weakening by seven paise to settle at 86.65 against the dollar. Earlier in the day, the domestic currency had strengthened to 86.52, aided by easing oil prices and a dip in the US dollar index during the Asian trading session. However, it then slid to an intraday record low of 86.70, before closing at 86.65.
The Reserve Bank of India (RBI) has adopted a flexible approach towards the rupee and is not looking to target specific levels for the currency. Sources say the central bank has enough reserves to manage excessive volatility in the foreign exchange market. At present, the RBI is in a wait-and-watch mode, particularly in light of the upcoming US political developments.
The central bank also recently underwent a leadership transition. Shaktikanta Das, after a six-year tenure, stepped down and was succeeded by Sanjay Malhotra, the former revenue secretary, who now serves as the new governor of the RBI.
One of the key concerns for the Indian economy remains the rising commodity prices, particularly crude oil. Over the past few days, oil prices have tested $81 per barrel. Fresh sanctions on Russia's crude industry and declining US crude inventories are likely to keep oil prices elevated. As Asian buyers look to sources of non-Russian crude, India's trade deficit is expected to be further strained.
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