Indian Rupee Nears Record Low As Fed-Driven Strong Dollar Weighs

The Indian rupee approached a record low, pressured by a stronger US dollar as traders pared bets on a December rate cut by the Federal Reserve, and as the local central bank was not seen stepping in to support the currency.

The rupee weakened as much as 0.6%, the most since Aug. 29, to 88.7437 per dollar on Thursday, closing in on its September record of 88.8050. Earlier this month, the Reserve Bank of India was alarmed to see the rupee nearing that level and sold dollars to stabilise it, said a person familiar with the matter.

“Most Asian currencies have weakened after the Fed cast doubts on a December rate cut, but the rupee has taken a bigger beating in the absence of strong central bank dollar sales in the spot market today,” said Anil Kumar Bhansali, head of treasury, Finrex Treasury Advisors.

Bhansali added that the rupee also faced pressure from dollar demand linked to the central bank squaring off certain positions in the non-deliverable forwards (NDF) market. He expects the currency to head toward 89.50 if it breaches the previous record.

A break beyond 88.8050 could open the door for a further decline toward 90, said Anindya Banerjee, currency analyst at Kotak Securities. That level has emerged as a key psychological line for traders after the RBI’s defense earlier this month.

Meanwhile, improving trade relations between Washington and Beijing have positioned China more favorably than India in the current environment, said Madhavi Arora, economist at Emkay Global Financial Services.

“This may also suggest that the RBI is allowing the rupee to adjust naturally, using it as an automatic stabilizer to cushion growth amid a loss of relative competitiveness,” she said.