Indian rupee hits record low of 90.63 against US dollar
What's the story
The Indian rupee has hit a new all-time low against the US dollar, falling to 90.63 per dollar in early trading on Monday. The fall breached its previous record low of 90.55 on December 12. Year-to-date, the currency has depreciated by nearly 6%. The decline is attributed to persistent foreign fund outflows and uncertainty over US-India trade negotiations.
Market analysis
Structural and short-term factors impacting rupee's value
Market participants have pointed out a combination of structural and short-term factors affecting the rupee's value. The uncertainty over a US trade deal has soured sentiment, while capital flows remain weak due to continued foreign selling of Indian equities and bonds. A widening trade deficit is also putting pressure on the external balance, further contributing to the rupee's depreciation.
Currency dynamics
Dollar demand-supply imbalance and RBI's intervention
Currency traders have also pointed out an imbalance in dollar demand and supply. The expectation of further depreciation has led importers to hedge more, while exporters are cautious about bringing dollar inflows to the market. This has tightened near-term liquidity. Meanwhile, the Reserve Bank of India (RBI) has intervened intermittently in recent months to smooth volatility but its presence appears less aggressive after rupee breached 88.80 level.
International impact
Global economic factors and rupee's vulnerability
Global economic factors also play a role in the rupee's vulnerability. Asian equity markets have dipped, mirroring declines in US stocks late last week. While most regional currencies have managed to stay stable, traders say the rupee is more susceptible due to domestic flow pressures. This week, all eyes will be on major global central bank decisions and delayed US macroeconomic data that could impact dollar movements globally.