Rupee drops to record low amid negative global cues, RBI support aids

The Indian rupee dropped to a record low near the close of trading on Wednesday after yet another rangebound trading session as it stayed wedged between negative global cues and support from the central bank.

The rupee hit a lifetime low of 83.98 to the US dollar in the last minute of trade. It closed at 83.9650, versus its previous close of 83.9675, having stayed in a narrow three-paisa range throughout the session.

"It is quite clear that the RBI (central bank) is defending the rupee," said a trader with a private bank. "If it allows the rupee to go below 84, dollar bulls will be active and a move towards 84.25 will be quick."

Over the last month, there were several instances when the Reserve Bank of India intervened on both sides of the forex market to support the currency.

This has led to the rupee holding a narrow range for extended periods. It has stayed in a 20-paisa range over the last month.

Meanwhile, the overnight weakness in US equities, after data that indicated manufacturing activity remained weak, percolated to Asian and European equities.

The data has raised the odds of a 50-basis-point rate cut at the Federal Reserve's Sept. 17-18 meeting to 42 per cent from 30 per cent, per the CME FedWatch Tool.

"With the Fed's monetary policy meeting just a fortnight away, the market has already priced in a 25-basis point rate cut," said Amit Pabari, managing director of CR Forex.

"However, any further deterioration in the data could reignite concerns, possibly prompting the Fed to consider a larger 50-basis point cut."

More clues on the direction of the Fed's monetary policy pivot will be gauged after Friday's US payroll numbers, which will likely set the tone for global rates going forward.