Rupee falls to new low of 85.83 as dollar hovers near two-year high

The rupee fell to a new low of Rs 85.83 per dollar on Monday as the US dollar hovered near a two-year high. State-owned banks sold dollars on behalf of the Reserve Bank of India (RBI) which avoided further depreciation.

 

The local currency settled at Rs 85.78 per dollar on Friday.

 

The Dollar index rose to 108.86. It measures the strength of the greenback against a basket of six major currencies.

 

Market participants are now watching whether the RBI will continue intervening around the 85.80 per dollar level, with the central bank's strategy seen as crucial in determining the rupee's direction in the coming days.

 

The domestic currency’s trajectory toward the 86 mark remains uncertain, as much depends on the RBI’s intervention strategy, market participants added. 

 

While the rupee has not been among the worst-performing currencies, providing some comfort to the RBI, the central banks’ approach on intervention is influenced by factors such as import cover. As import cover decreases, the RBI may allow the rupee to find a new equilibrium, experts said.

 

Despite recent active market interventions to stabilize the currency near key levels, the timing and pace of any breach of 86 remain unpredictable.

 

“The RBI's intervention strategy is closely tied to import cover. As import cover starts to decline, they often allow the currency to find a new level. We will have to see how the RBI approaches this, but reaching 86 could happen at any time”, said the treasury head at a private bank.

 

The RBI has been actively protecting the rupee, including today, but whether they let it reach 86 quickly or gradually is uncertain. It's very difficult for anyone to predict how and when these levels will be breached, the treasury official said.

 

Investors are now focused on the U.S. non-farm payroll (NFP) data which is scheduled on Friday, as several Federal Reserve policymakers are set to speak during the week. The dollar remains strong, driven by expectations of fewer Fed rate cuts in 2025, with last week’s rally pushing the euro to its lowest point on Friday.

 

“The investors are looking towards NFPR data as a slew of Federal Reserve policymakers will speak during the week and the dollar continues to draw strength from fewer Fed cuts in 2025 with its two year high climb Last week pushing EUR to its lowest on Friday. 86 should be seen soon as we wait for NFPR, US CPI figures and Trump Inauguration,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.