Rupee under pressure: Macro headwinds signal further weakness ahead, says Navneet Damani

The Indian rupee’s sharp slide in recent months has raised fresh concerns among market participants, with currency traders and analysts pointing to a confluence of global and domestic factors driving the depreciation. After holding relatively stable for a period, the currency has once again come under pressure, reflecting shifting macroeconomic dynamics and rising global uncertainties.Market watchers note that the rupee’s recent movement has been more pronounced than earlier phases, with the currency weakening significantly over the last quarter. While a stronger US dollar has played its part, the broader narrative suggests a more complex interplay of factors weighing on the domestic unit.

Responding to the ongoing trend, Navneet Damani from Motilal Oswal highlighted the renewed momentum in the rupee’s depreciation cycle and the possibility of further downside.

“We have been witnessing that a massive round of depreciation has once again started in the INR. We have seen it fall from 83 to 90 and then consolidating for a while and now we are seeing the next leg of fall towards 95-96 probably. Largely for the last seven-eight months we have seen dollar index and rupee being decoupled. But what suddenly has happened is a rebound in dollar index from 96-97 level to 100 is where rupee started to move along or in tandem with what the DXY is behaving,” he said.

“We are seeing US bond yields rising to about 4.42%. The Indian bond yields are closer to 6.8%. Inflationary concerns are kind of shooting up. And all this macroeconomic picture does not look very robust at this point in time. Crude oil prices have risen very sharply. So, it is going to be probably not a rate cut kind of a scenario, but a possible pause and then a rate hike kind of a scenario which is kind of having the upper hand at the rupee at this point in time,” he added.

A key shift, according to analysts, has been the rupee’s renewed correlation with the dollar index (DXY), after months of relative decoupling. The rebound in the dollar, coupled with rising US bond yields, has tightened global liquidity conditions and made emerging market currencies less attractive.

At the same time, India’s own macro backdrop has added to the pressure. Elevated crude oil prices remain a critical risk, given the country’s dependence on imports. Any sustained rise in Brent crude not only widens the current account deficit but also feeds into inflation, complicating the Reserve Bank of India’s policy outlook.The possibility of a shift in monetary stance—from expectations of rate cuts to a pause or even tightening bias—has further weighed on sentiment. Higher inflation expectations and global uncertainties, including ongoing geopolitical tensions, continue to cloud the outlook.

For now, the rupee appears to be navigating a challenging environment, with external shocks and domestic vulnerabilities aligning at the same time. If current trends persist, market participants believe the currency could remain under pressure in the near term, with key levels being closely watched by traders and policymakers alike.