Rupee hits all-time low pressured by weak Yuan, strong dollar bids

The Indian rupee weakened to its lifetime low on Monday, pressured by weakness in the offshore Chinese yuan and strong dollar bids from importers, likely related to month-end payments, while state-run banks' dollar sales capped the decline.

The rupee declined to 85.12 against the U.S. dollar, hitting an all-time for the fifth consecutive trading session and inching past the previous record low of 85.10 hit on Friday. The currency ended the session at 85.1175, down 0.1% on the day.

The offshore Chinese yuan declined to 7.30, down 0.2% on the day, while the dollar index rose 0.1% to 107.9.

Three traders cited mild dollar sales from state-run banks, likely on behalf of the Reserve Bank of India, helping limit the rupee's losses.

The RBI's frequent interventions have supported the rupee in the face of multiple headwinds, including a hawkish shift in the Federal Reserve's outlook for policy rates over 2025, concerns about India's slowing economic growth and tepid capital flows.

State-run banks were also spotted conducting mid-tenor dollar-rupee buy/sell swaps, traders said. The RBI has ramped up its forward dollar sales to limit the impact of spot market interventions on cash in the banking system and on foreign exchange reserves.

"India's forex reserves have slipped to a six-month low, reflecting the RBI's timely interventions to curb excessive depreciation of the rupee," said Amit Pabari, managing director at FX advisory firm CR Forex, pegging the local unit in the 84.70-85.20 range in the near-term.

Meanwhile, dollar-rupee forward premiums rose on Monday with the 1-year implied yield up 2 basis points at 2.24% while the 1-month forward premiums rose to 20 paisa.

The forward premiums were aided by a rise in the overnight swap rate which was lifted by likely cash dollar inflows related to ongoing initial public offerings (IPO).