Rupee plunges to record low of 85.74 against US dollar

The rupee hit a fresh record low on Friday, depreciating by 0.6 per cent to close at 85.7437 per US dollar. This marks its steepest single-day fall since February 2023, as per Bloomberg data. The local currency has extended its losing streak for the ninth consecutive session, shedding three per cent against the greenback in 2024.

External factors weigh heavily on the rupee
The rupee's decline was driven by strong dollar demand in the non-deliverable forwards (NDF) market, coupled with robust US Treasury yields. The dollar index, a measure of the US currency’s strength against six major currencies, climbed to 108.1, supported by 10-year US Treasury yields hovering near 4.50 per cent. Other Asian currencies also faced pressure, dropping between 0.1 and 1 per cent during the session.

Trade deficit, oil demand, and RBI intervention
Broad dollar strength, coupled with India’s widening trade deficit and slower economic growth, has kept the rupee under pressure. Analysts cite month-end dollar demand from oil companies as another contributing factor. The Reserve Bank of India (RBI) has been actively intervening to stabilize the currency. In October, the central bank purchased $27.5 billion while selling $36.78 billion, resulting in a net sale of $9.28 billion in the spot forex market.

Outlook remains cautious
Despite these efforts, the rupee has weakened rapidly from 84 to 85 in just two months, a stark contrast to the 14 months it took to slide from 83 to 84. Amit Pabari, Managing Director at CR Forex, remarked on the currency's heightened sensitivity to external factors, forecasting the USD/INR pair to trade between 85.00 and 85.50 in the near term.

Global dollar strength persists
The greenback has gained over two per cent this month and is on track for its third consecutive monthly gain. Strong US economic data, including Initial Jobless Claims, has bolstered the dollar. Analysts predict that the dollar index will remain elevated, with support at 107 and potential corrections to 105.50 if breached.