The rupee hit a record low of 89.41 against the US dollar for the first time, influenced by uncertainties regarding the US-India trade deal, short covering, and lack of intervention from the Reserve Bank of India (RBI).
The rupee fell 70 paise (0.79%) to close at 89.41, marking its largest single-day drop since May 8, from a previous close of 88.71.
The rise in the USDINR exchange rate was primarily due to short covering, delays in the US-India trade deal, and a noticeable lack of intervention from the central bank, according to Dilip Parmar, Research Analyst at HDFC Securities.
Weak sentiment in the rupee persists due to a lack of clarity on tariff rollback and trade assurances, resulting in a broad risk-off movement, according to Jateen Trivedi, VP Research Analyst at LKP Securities.
The rupee has become one of the weakest major currencies in Asia this year, with foreign investors pulling out $16.5 billion from Indian equities, as noted by Rahul Kalantri, VP Commodities at Mehta Equities Ltd.
The rupee’s decline follows RBI Governor Sanjay Malhotra’s statement regarding a potential ‘good trade deal’ with the US, which could alleviate pressure on the current account deficit and the currency’s exchange rate.
RBI does not target a specific rupee level; its value is influenced by market demand and supply conditions.
Market participants noted that the stop-loss was activated around the 88.90–89 levels. A YES Bank report indicated that following the RBI’s decision to permit the USD/INR to trade above 88.80, the markets began covering short positions, causing the currency to depreciate past 89.00 levels.
Dipti Chitale, CEO of Mecklai Financial Services, noted that RBI Governor Sanjay Malhotra stated there is no specific target for the currency, attributing its recent depreciation to dollar demand and geopolitical tensions.
The rupee is expected to depreciate against the US dollar soon, with technical analysis indicating a resistance level at 89.50 for USD/INR. If this level is breached, movement toward 89.95 may occur, while 88.80 will serve as critical support, according to Parmar of HDFC Securities.
