Rupee hits record low of 85.94/$ intraday, recovers to close at 85.86/$

The rupee on Thursday slipped to 85.94 against the dollar intraday, a fresh low, before recovering some losses to close the day at 85.86, flat compared to Wednesday’s closing.

 

Due to the heightened hedging activity by foreign investors and robust demand for dollars, three-month non-deliverable forward (NDF) points for the dollar-rupee pair has been trading at its highest since November 2022, according to Bloomberg data.

 

The rupee has been trading with a depreciation bias, hitting new lows over the past few weeks.

 

The dollar remains strong, driven by expectations of fewer Federal Reserve rate cuts in 2025 amid concerns that United States President-elect Donald Trump’s proposed tariffs and tax cuts could drive higher inflation.

 

The dollar index inched up to 109.14 compared to 108.98 on Wednesday. The index measures the strength of the greenback against a basket of six major currencies.

 

“The dollar is moving up on expectations of higher tariffs by the US. However, it will depend upon how much Trump delivers compared to the promises he has made in the election campaign,” said a senior executive at a private bank.

 

“We expect the movement to continue until Trump announces his policies,” he added.

 

Meanwhile, market speculation suggests the Reserve Bank of India (RBI) may scale back its intervention in the foreign exchange market, driven by mounting bets in the NDF market and an increase in the Real Effective Exchange Rate (REER) of the rupee.

 

The rupee has appreciated in the 40-currency basket, with the index moving to 108 in November, indicating that its depreciation has been more subdued compared to its peer currencies.

 

While the RBI has actively intervened to manage currency volatility, it may also be mindful of preserving the rupee’s competitiveness against emerging market currencies. The spread between the US 10-year yield, currently at 4.68 per cent, and India’s 10-year yield, at approximately 6.75 per cent, suggests limited room for manoeuvre, market participants said.

 

According to RBI data, the central bank had $50 billion short positions as of October 31, an increase of $35 billion during the month.

 

Market participants said the rupee could breach the 86 level against the dollar in the next few sessions, with global and domestic factors driving the trajectory.

 

“This trend in NDF, coupled with concerns over overvaluation and significant depreciation in peer groups, has likely drawn the RBI’s attention,” said the treasury at a private bank. “Until US policies under the Trump administration are clarified, uncertainties are expected to persist,” he said.

 

The rupee has depreciated by 0.29 per cent against the dollar in January so far. In the current financial year, it has depreciated by 2.86 per cent.