Rupee Records Worst Decline Against Dollar In Nearly Two Years

The rupee ended at record closing low against the US dollar for the fourth session in a row on Monday as bank persistently purchased the greenback on fears that the Indian unit will decline further.

The rupee depreciated beyond the psychologically crucial level of 86 per dollar at open, as the dollar index hovered around over two-year high and oil prices surged.

The rupee weakened by 62 paise to a record low of 86.60 against the dollar, marking the worst intraday decline since Feb 6, 2023. It settled at 86.58 a dollar, according to data on Bloomberg.

The Indian unit also emerged as the worst performing currency against the greenback among its Asian peers.

On Friday, the rupee closed at record low level of 85.97 a dollar. The Indian unit had crossed the 86 mark in the offshore non-deliverable forwards market on Friday.

"Although the RBI typically steps in to stabilise the rupee during sharp declines, liquidity shortages often limit its capacity to sell dollars without worsening the deficit," Amit Pabari, managing director, CR Forex Advisors. "Despite these constraints, the RBI intervened at the 86.20 level, signalling its commitment to curbing excessive depreciation."

The dollar index, which measures the strength of the greenback against six major currencies, rose to 109.97 on Friday, marking the highest level since Nov. 10, 2022. The index rose after data showed that the US created more jobs than expected, and one-year inflation expectation rose.

"US Nonfarm Payrolls headline data came in at 256,000 new workers against the 227,000 in November. Economists anticipated slower job growth at 160,00," said Kunal Sodhani, vice president, Shinhan Bank.

The strong set of data from the world's largest economy raised fears that the US Federal Reserve may go for less rate cuts than projected.

"The CME FedWatch Tool is projecting a 93.1% chance that interest rates will be kept unchanged at current levels in the January meeting. Traders expect the Fed to cut interest rates by just 30 bps over the course of this year, compared with cuts worth about 45 bps before the Non-Farm Payroll report," said Sodhani.

The crude oil futures rose to 81.49 a dollar, the highest level since Oct. 28, 2024 in Asian trade, as the supply outlook worsened after the US imposed fresh sanctions on Russian oil supplies. The aggressive sanctions, which targets two large exporters from Russia, insurance companies, and more than 150 tankers, will affect imports to India and China, Bloomberg reported.

"Exporters may continue to wait with a stop loss at 85.75 since the rupee remains in a weakening mode due to dollar demand. Importers to buy all dips," said Anil Bhansali, executive director at Finrex Treasury Advisors LLP.