Indian Rupee Hits All-Time Low

The Indian rupee fell to a new lifetime low of 89.95 on December 2.

The currency touched 89.9475 against the U.S. dollar before ending at 89.87, down nearly 0.4% on the day and logging its fifth consecutive daily fall.

The rupee's slide picked up pace on December 1 after it broke past 89.5, a level the RBI had previously defended, triggering small stop-loss orders and a burst of accelerated dollar buying from importers.

The rupee's drop on December 1 stood out all the more because it came despite India's stellar gross domestic product (GDP) print and on a day when Asian cues were not exerting downward pressure.

Consequently, Indian equities were trading 0.5% lower.

"The continuing weakness in the rupee is a dampener which is impacting FII flows. A fair trade deal between India and the US can stem the weakness in rupee, but this has been hanging fire for too long," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

"Since the current stance of (INR) weakness continues, we have been advising exporters to just sell (USD) on cash/spot basis and keep minimum hedges," Anil Bhansali, head of treasury at Finrex Treasury Advisors told Reuters.

"Importers have been advised to buy all dips (on USD/INR)," he added.

India’s ballooning trade deficit is expected to push the current account deficit wider in the ongoing fiscal year, economists say.

HSBC forecasts that India’s current account deficit will rise to 1.4% of GDP in the current fiscal year from 0.6% last year.

Underlying fundamentals point to further rupee weakness, suggesting the RBI may eventually allow the currency to slip past 90 over time, according to MUFG Bank.

"Looking ahead, the 90 level is a key psychological mark, and we'd expect the RBI to continue intervening as the rate approaches that threshold. On the downside, support lies around 88.80 to 89. We can't confirm a top unless we see sustained trading below 88.80. If the pair breaks above 90, the next level to watch would be around 91.5," said Anindya Banerjee, Head of Research – Currency, Commodity and Interest Rate Derivatives, Kotak Securities.

"Trade deal uncertainty with the US continues to keep sentiment fragile. Although officials indicate discussions are moving positively, markets now need a final, concrete agreement for the rupee to find meaningful support. Additionally, the lack of notable intervention in November has allowed the rupee to drift weaker without much resistance. Rupee range remains weak between 89.35–89.90 for the coming sessions," said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.