The Indian rupee fell to a record low on Friday on the back of strong dollar demand in the non-deliverable forward (NDF) market. According to Bloomberg, the rupee fell 0.6% to a new all-time low of 85.7437 rupees to the dollar, the steepest one-day decline since February 2023.
The local currency’s depreciation widened for nine consecutive sessions, depreciating 3% against the US dollar since the beginning of the year. The rupee is on track to post an annual loss for the seventh consecutive year.
The dollar index, which measures the dollar’s strength against a basket of six currencies, was trading slightly higher at 108.1 as U.S. Treasury yields soared, with the 10-year Treasury note hovering around 4.50%. Other Asian currencies fell between 0.1% and 1%.
The U.S. dollar has risen more than 2% so far this month and is on track for its first gain in three months, according to Reuters. A broad-based dollar strength, concerns over a widening trade deficit and slowing domestic growth are putting pressure on the rupee.
“Pressure on the currency is likely to continue due to end-of-month dollar demand from local oil companies. Therefore, we expect the USDINR pair to trade within the 85.00 to 85.50 range in the short term,” CR Forex said Amit Pavali, Managing Director.
The latest RBI bulletin indicates that the central bank continues to actively intervene in the foreign exchange market to stabilize the currency. In October alone, RBI bought $27.5 billion and sold $36.78 billion, resulting in a net short position of $9.28 billion in the spot foreign exchange market.
“Despite such aggressive policies, the rupee depreciated from Rs 84 to Rs 85 within just two months, as opposed to the previous 14 months it took to depreciate from Rs 83 to Rs 84. This highlights that the rupee is more sensitive to external factors than domestic influences.
Meanwhile, the dollar index remained steady above 108 even in the shortened holiday week, supported by a higher-than-expected number of new jobless claims.
Pavali expects the dollar index to continue rising in the short term, with immediate support at $107. He said a break below this could trigger a further correction towards the 105.50 level.
(Information provided by agency)
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