MUMBAI: The rupee fell to an all-time low of 89.48 against the US dollar on Friday, dragged down by weak global risk sentiment and uncertainty surrounding the US–India trade deal. A steady dollar index, which extended gains above the crucial 100 mark following stronger-than-expected US non-farm payroll data of 119,000 and hawkish Fed commentary on delaying rate cuts, further pressured the rupee.
There were also reports of an Indian company being on the list of sanctioned firms for buying Iranian crude. Traders now expect the rupee to weaken further beyond 90 level in the short term, however positive development on the US-India trade deal would relieve pressure on the rupee. The 10-year yields also fell by 4 bps to 6.57 per cent.
The currency is now among the weakest major Asian performers this year, as foreign investors have withdrawn $16.5 billion from Indian equities so far. During the financial year to date, the rupee has depreciated by around 4.4 per cent.
The rupee’s fall comes despite the RBI Governor on Thursday stating that once the US-India trade deal is done it would be positive for the rupee and the current account. But during the day, the RBI stopped defending the rupee at 88.80 (a level it has held for a long time) much to the surprise of importers and dealers.
A trader said that once the dollar-rupee broke decisively above 89, aggressive short covering kicked in across onshore and offshore markets, triggering stops and amplifying the upside move.
At the interbank foreign exchange market, the rupee opened at 88.67 and plunged 82 paise to hit its lowest-ever intra-day level of 89.50 before trading at 89.48 against the American currency. On Thursday, the rupee had depreciated 20 paise to close at 88.68 against the US dollar. The unit had recorded its previous all-time intra-day low of 88.85 on September 30. The previous lowest closing level was registered at 88.81 against the US dollar on October 14.
According to Abhishek Goenka, founder and chief executive officer at IFA Global, the RBI has already expended considerable forex reserves defending 88.80. It’s short position in forwards including NDF is likely over $ 70 billion. “The RBI would have wanted to keep some ammunition dry to intervene at higher levels rather than go all in at 88.80. Going forward we expect the Rupee to settle in a new 88.80-90.00 range. We have maintained that the Rupee will deliberate in a gradual, staircase like manner,” added Goenka.
Rahul Kalantri, vice-president commodities at Mehta Equities Ltd said, “Today’s USD-INR weekly close above 89.20 is a negative signal for the rupee. We expect the rupee to weaken further towards 90.40 and 91 levels, while the key support remains at 88.45.”