Rupee weakens to settle at new closing low as US dollar strengthens

Market participants said timely intervention by RBI through dollar sales helped avoid further depreciation of the local currency

The rupee weakened on Tuesday to settle at a new closing low of Rs 84.08 against the US dollar as the greenback strengthened ahead of the presidential elections, and foreign investors sold domestic equities, said dealers. The local currency had settled at Rs 84.07 on Monday.

Additionally, Asian currencies weakened, with the Japanese yen hitting its lowest level since late July. The new Japanese Prime Minister, Ishiba, said that the Japanese economy could not withstand further rate hikes, pushing the yen lower to near 151.

Market participants said timely intervention by the Reserve Bank of India (RBI) through dollar sales helped avoid further depreciation of the local currency.

“The dollar is gaining strength globally as the odds of Trump winning are increasing. He is more inclined towards tariffs and higher borrowing, so US yields are going up. There are continuous outflows,” said VRC Reddy, treasury head at Karur Vysya Bank. “The RBI is not allowing much depreciation; they are allowing gradual depreciation, aligning with Asian peers. We see the rupee trading between Rs 84 and Rs 84.20 per dollar in the near term,” he added.

According to the latest data, the RBI sold a net total of $6.49 billion worth of foreign currency in August.

“The dollar is expected to strengthen further until the US elections,” said a dealer at a private bank. “The RBI will not allow sharp depreciation, but there is a depreciation bias for the rupee at the moment,” he added.

The Real Effective Exchange Rate (REER), which indicates the value of the Indian rupee compared to other currencies, decreased slightly from 105.44 in August to 105.15 in September of the current year. A lower REER suggests that the rupee became slightly more competitive internationally.

“Despite huge dollar demand, the RBI ensured that the rupee did not cross 84.08 today, as FPIs continued their onslaught on Indian indices. The rupee traded in a 2-paise range for the day, with the RBI protecting it at 84.08 and FPIs buying near 84.07,” said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.