What led to rupee becoming Asia’s worst performing currency in May?

After appreciating towards 83.94/$1 levels in April, the combined impact of tariff uncertainties, border tensions and expectations of further monetary easing by the central bank made the rupee the worst performing currency in Asia in May.

The rupee weakened 1.27% in May, from 84.48/$1 at the beginning of the month to 85.57/$1 as of May 30, and retreated the most in Asia.

“There have been unwinding of long rupee positions amid tariff uncertainties while importers are taking advantage of lower forward premiums,” said Kunal Sodhani, head of treasury at Shinhan Bank India. One year dollar-rupee forward premiums fell to 1.94%, from 2.34% in early April. Some positive cues like lower inflation, growth prospects and a softer dollar index have helped the rupee to trade around the 85.50/$1 levels, but global economic factors can add to further weakness.

“A sharp rebound in the US dollar, an unexpected shift in the Federal Reserve’s interest rate outlook, or delays in the India-US trade negotiations could dampen optimism in the near future,” said Sugandha Sachdeva, founder of SS WealthStreet, a New Delhibased research firm.