Rupee Slides To New Record Low Of 85.20 As Dollar Strength Persists

Indian rupee weakened 7 paise by midday on Tuesday to a new record low of 85.20 per US dollar as the greenback maintained its strength.

The dollar index was at 108.14, up 0.10%, with support from US economic resilience, rising US Treasury yields, and widening interest rate differentials. Meanwhile, Brent crude inched slightly up to $72.64 per barrel as of midday.

Before the drop, the domestic currency gave up slim opening gains earlier today after opening 2 paise stronger at 85.10 against the dollar, compared to its previous close of 85.12.

The opening gains were a result of thin trading volumes ahead of the Christmas holiday season, while global and domestic factors continue to weigh on the currency's outlook, according to experts.

"Rupee opened flat and made a new low of 85.15 as dollar index crosses 108 again and US 10-year yields rise to 4.58%. Inflows are tepid while outflows continue on all fronts," said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.

He attributed rupee's continued weakening to persistent dollar demand. "Exporters may continue to wait with a stop loss at 84.90, while importers are advised to buy on all dips," he added.

Global pressures, including the Federal Reserve’s hawkish stance and a weaker offshore Chinese yuan, are key factors impacting the rupee, according to Amit Pabari, managing director at CR Forex Advisors. "Domestically, a widening trade deficit and tepid economic growth continue to weigh on the currency," he said.  

India's foreign exchange reserves have also seen a decline from their peak of $704.89 billion in September to $654.85 billion, according to the latest RBI data.  

Looking ahead, thin trading volumes during the holiday season are expected to keep market volatility subdued. However, the dollar index is likely to remain elevated, sustaining pressure on emerging market currencies. The rupee is anticipated to trade within a range of 84.70 to 85.20 in the coming days, according to Pabari.