The rupee breached the 89-mark for the first time, closing at a fresh record low of 89.41 against the US dollar on Friday amid uncertainty around the US-India trade deal, short covering and in the absence of intervention from the Reserve Bank of India (RBI).
The rupee plunged 70 paise, or 0.79 per cent, to close at 89.41, marking the biggest single-day fall since May 8, compared to the previous close of 88.71.
“The sudden surge in the USDINR pair was largely attributed to short covering, delay in US India trade deal and the apparent absence of intervention from the central bank,” said Dilip Parmar, Research Analyst, HDFC Securities.
“With no visibility on tariff rollback or trade-related assurances, sentiment remained weak, leading to a broad risk-off move in the rupee,” said Jateen Trivedi, VP Research Analyst — Commodity and Currency, LKP Securities.
The rupee is now among the weakest major Asian performers this year, as foreign investors have withdrawn $16.5 billion from Indian equities so far, according to Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
The drop in the rupee comes a day after RBI Governor Sanjay Malhotra said if India strikes a ‘good trade deal’ with the US, it would reduce pressure on the current account deficit and the rupee’s exchange rate.
He also said the RBI does not target any specific level for the rupee and its value is driven by market’s demand and supply conditions.
Market participants said the stop-loss got triggered at around 88.90–89 levels.
“Once the RBI allowed the USD/INR to trade beyond the 88.80 levels, markets started covering short positions and this led to the currency to depreciate beyond 89.00 levels,” according to a YES Bank report.
“This fall coincidently aligns with comments made yesterday by RBI Governor Sanjay Malhotra, who indicated that there is no specific target level for the currency and that the recent depreciation is largely a function of dollar demand and broader geopolitical tensions,” said Dipti Chitale, CEO, Mecklai Financial Services Pvt Ltd.
The rupee is likely to depreciate against the US currency in the near term. The technical outlook points to 89.50 as the next level of resistance for spot USD/INR, which, if broken, could see a move toward 89.95 and 88.80 will act as critical support going ahead, Parmar of HDFC Securities said.