BRICS Nations Battling to defend their currencies – Can India Hold the Line?”
The Indian Rupee at a Historic Low Amid Yuan Slump and Dollar Strength
The Indian Rupee hit an all-time low, pressured by a significant decline in the offshore Chinese Yuan, which fell to a one-year low. Persistently strong dollar bids in the non-deliverable forwards (NDF) market further compounded the rupee’s weakness. The currency touched a record low of 84.7575 before ending the day nearly flat at 84.74.
The Chinese Yuan has faced renewed depreciation pressures, fueled by a mix of economic challenges and geopolitical concerns. Among these is US President-elect Donald Trump’s tariff threats and the monetary policy divergence between China and the United States.
Trump’s Tariff Threats Add to Global Currency Pressures
President-elect Trump has escalated his campaign rhetoric by threatening to impose 100% tariffs on a bloc of nine nations, should they pursue creating a rival currency to challenge the US dollar’s dominance. This bloc includes key BRICS nations—Brazil, Russia, India, China, and South Africa—alongside newer members like Iran, Egypt, Ethiopia, and the UAE.
The offshore Yuan breached the crucial 7.3 per dollar level on Tuesday, its weakest level since November 2023, while the onshore Yuan hovered near this threshold. This further weighed on BRICS currencies, which have broadly depreciated against the US dollar since the announcement.
BRICS Currencies Under Pressure
The BRICS currencies, excluding South Africa’s Rand (which rebounded from last year’s record low), have slumped significantly this year. Brazil’s Real and India’s Rupee hit record lows, while the Chinese Yuan is nearing its historic low against the greenback. Russia’s Rouble also plummeted, touching levels unseen since its all-time low during the early days of the Ukraine invasion in 2022.
These steep declines highlight the vulnerability of the BRICS economies, which represent three of the top 10 global economies and two of the top five. This fragility poses challenges for FX markets, as traders hedge against further currency depreciation by favoring the US dollar.
BRICS’ Common Currency Plans in Jeopardy
Long-standing discussions on establishing a common BRICS currency have gained momentum since the West’s imposition of sanctions on Russia over the Ukraine war. However, Trump’s strong opposition to such a move, coupled with his threats of severe penalties, underscores the difficulty of reducing reliance on the dollar.
While BRICS nations aim to reduce dollar dependency, a complete decoupling is nearly impossible in the short term. Their continued reliance on the dollar could exacerbate currency weakness, leading to higher inflation, rising interest rates, and further economic strain.
Technical Outlook – U.S Dollar/ Indian Rupee (BRICS Nations)
The rupee’s trajectory remains tightly linked to global developments, particularly dollar strength and Yuan dynamics. With Trump set to assume office on January 20, heightened uncertainty is likely to drive defensive positioning in FX markets, favoring the US dollar over other currencies. This could further pressure emerging market currencies like the rupee, adding to challenges for policymakers navigating inflation and growth concerns.
On the upside, key resistance is lies at 84.75 on a closing basis, a break below will open the door for 84.92-85.12 in coming month.
Furthermore, RBI policy on 6 December will be the next important event.
Until then, Happy Trading!
Commodity Samachar Securities
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