Indian rupee closed at a record low against the US dollar on Monday weighed down by likely foreign fund outflows from the Indian stock market and the unwinding of carry trades amid US recession fears that spooked global financial markets.
Rupee ended at its all-time low of 83.8450 a dollar, down 0.1% from its previous close of 83.8025.
The dollar index fell about 0.5% to 102.6, its lowest since March, while Asian currencies were up 0.1% to 1.7% with the offshore Chinese yuan touching its strongest level since January.
The rupee diverged from its Asian peers hurt by the unwinding of carry trades which used the Chinese yuan to fund long bets on the local currency, Reuters reported.
“The weakness got extended after the US reported a dismal jobs data on Friday, which sparked concerns over growth in the US. The Fed is now speculated to cut interest rates more aggressively in September, could be by 50 bps. Another NFP jobs data is due before the September policy date so need to monitor incoming data closely. The only trigger working in the favour of the rupee is falling crude oil prices,” said Jigar Trivedi, Senior Research Analyst - Currencies & Commodities, Reliance Securities.
Ahead of the Reserve Bank of India’s (RBI) monetary policy this week, Trivedi expects the USDINR to stay volatile with a positive undertone with 84.20 as the next resistance.
Meanwhile, the Indian stock market benchmark indices saw their worst single day decline in over two months.
The BSE Sensex and the Nifty 50, closed lower by about 2.7% each, their worst single day decline in over two months.
The Sensex crashed 2,222.55 points, or 2.74%, to close at 78,759.40, while Nifty 50 plunged 662.10 points, or 2.68%, to end at 24,055.60.
Aggressive dollar bids from foreign banks, likely on behalf of custodial clients, pressured the rupee through the day's session, a foreign exchange trader at a state-run bank told Reuters. But intervention from the Reserve Bank of India helped limit the rupee's losses, traders said.
Investors now await US services PMI data due later in the day wherein a weaker - than - expected reading could compound worries about a potential recession in the United States.
On Friday, Foreign institutional investors (FIIs) net sold Indian shares worth ₹3,310 crore, while Domestic Institutional Investors (DIIs) net purchased shares to the tune of ₹2,965.94 crore, as per provisional data available on the exchanges.
(With inputs from Reuters)
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