The rupee on Monday closed at a record low of 85.5350 against the dollar weighed by weak equities, foreign fund outflows and persistent demand for the greenback from importers.
A softer yuan and apprehensions that the Reserve Bank of India (RBI) could loosen its hold over the domestic currency to correct its overvalued status also impacted sentiment.
Last Friday, the rupee fell below the 85.50 mark to end at 85.53. During intra-day trades, the domestic unit had plummeted to an historic low of 85.83 after which it rebounded due to RBI intervention.
In a rangebound session at the inter-bank forex market, the rupee fell to a day’s low of 85.59 and later settled at 83.5350.
“The rupee traded flat near 85.54 as the dollar index remained steady amid low market activity during the holiday season. With global and US markets in a subdued mode ahead of the New Year, weekly jobless claims in the US will be a key data point on the radar for participants,’’ Jateen Trivedi, VP Research Analyst — commodity and currency, LKP Securities said.
“Market sentiment remains muted, with limited movement expected in the short term. The rupee’s immediate range is likely to hover between 85.40 and 85.70 as traders wait for fresh cues in the coming weeks,’’ he added.
Forex circles added that a weaker yuan and dollar demand from importers also imparted pressure on the rupee. The offshore Chinese currency has been under pressure on account of widening interest rate differential with the US (making US treasuries and bonds more attractive for investors).
The rupee has also been weighed by expectation that the RBI may not intervene aggressively in the market. This came after its December bulletin said that the real effective exchange rate (REER) stood at 108.14 in November. This indicated that the currency was overvalued by 8 per cent.
``There seems to be a mindset change as far as managing the rupee is concerned. The RBI seems to be letting the rupee adjust in order to correct overvaluation. It is moving away from the heavy-handed intervention style in which the rupee was almost behaving like a pegged currency’’, a note from IFA Global said.
