Rupee weakens to new record low of 90.78 against US dollar

Rupee slips to record low at open

The rupee slipped to fresh record low on Monday, as an ongoing stalemate in US-India trade negotiations continued to weigh on the currency alongside persistent foreign selling of local equities and bonds.

The rupee fell to 90.7850, extending its year-to-date decline to about 6%, before ending the session slightly higher at 90.73, compared with 90.4150 in the previous session.

Forex traders said rupee is trading with a negative bias as investors are in wait and watch mode and awaiting cues from the India-US trade deal front.

At the interbank foreign exchange market, the rupee opened at 90.53 against the US dollar.

The rupee had slid to a new all-time low of 90.55 per dollar on Friday, marking its second straight session of a new low and capping a week in which it lost nearly 0.5%. Year-to-date, the currency is down 5.6%.

A familiar mix of headwinds continues to dominate - the lack of a US trade deal has sapped sentiment, capital flows remain weak at a time when the trade deficit is widening, and a depreciation bias is encouraging importers to step up hedging, leaving exporters reluctant to add dollar supply.

"What stands out is how skewed the daily flow has become," a Mumbai-based currency trader said.

"The order book is stacked with buying interest, with exporter offers thin and spaced out."

The Reserve Bank of India has stepped in frequently in recent months to slow the rupee's slide. However, its support has appeared less forceful since the currency weakened past the 88.80 level.

"FPIs continue to be in selling mode in equity and debt while RBI has been selling dollars to fund their long positions," said Anil Kumar Bhansali, Head of Treasury and Executive Director Finrex Treasury Advisors LLP.

On the domestic equity market front, the 30-share benchmark index Sensex was trading 298.86 points lower at 84,968.80, while the Nifty was down 121.40 points at 25,925.55.

Foreign Institurional Investors sold equities worth Rs 1,114.22 crore on Friday, according to exchange data.

"A major drag on the market continues to be the elusive US-India trade deal which is impacting India’s exports to the US, widening of trade deficit and continuous depreciation in the rupee," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

The negatively skewed dollar flows and the drag from the trade stalemate have left the rupee unable to benefit from a broadly weaker dollar, which is on track to end the year down more than 9% against a basket of major currencies.

The focus now turns to the RBI's 3-year dollar-rupee buy/sell swap auction slated for Tuesday. Bankers expect the swap to be fully subscribed but say corporate interest could be muted due to elevated hedging costs.