Rupee slumps to fresh record low of 89.43 against US dollar: What's behind the fall?

The Indian rupee slumped to a fresh low against the US dollar on Friday, November 21, weighed down by weakened risk appetite as rate cut expectations by the Federal Reserve faded and amid uncertainty over the India-US trade deal.

The rupee touched 89.48, sliding past its previous all-time low of 88.80 hit in late September and again earlier this month. It was down 0.8% on the day.

“Global risk-off sentiment has spilt into currency markets after a sharp overnight sell-off in cryptocurrencies and AI-linked technology stocks. The sudden unwinding of risk trades is weighing on emerging-market currencies, including the Indian Rupee," said Anindya Banerjee, Head of Research – Currency, Commodity and Interest Rate Derivatives at Kotak Securities.

Adding to the pressure is the lingering uncertainty around the proposed India–US trade deal, which markets had hoped would offer clarity on the bilateral economic outlook, he added. “With no firm timelines emerging, sentiment remains fragile.”

RBI Steps Away From Defence

The decline came a day after RBI Governor Sanjay Malhotra said the rupee’s pressure would ease once India signs a “good” trade deal with the US.

Banerjee said that USD/INR broke decisively above 89.00, a level many importers and dealers believed the RBI would defend. "Once this perception failed, aggressive short-covering kicked in across onshore and offshore markets, triggering stops and amplifying the upside move," he added.

“The RBI seems to have stepped away from the market amid a building wave of dollar demand,” Dhiraj Nim, currency strategist at Australia and New Zealand Bank, told Bloomberg. “There is uncertainty over when the trade deal will arrive and as such the RBI may not want to keep defending a level and using reserves.”

Amid trade uncertainty and ₹143,698 crore selloff of Indian stocks by foreign portfolio investors this year, the rupee has slipped over 5% against the US dollar and emerged as one of the weakest Asian market currencies.

Can Rupee Hit 90/Dollar Mark?

In the near term, a combination of risk-off flows, a firmer US Dollar Index, and trade-deal uncertainty keeps the bias upward, with the pair potentially testing the 90.00 mark, said Kotak analyst. “For now, traders are watching a broad spot range of 88.70–90.30.”

On fundamentals, the rupee remains undervalued relative to its peers on a REER basis, but a positive catalyst is needed to close that gap, he said. "A successful conclusion of the India–US trade agreement could be that trigger.”

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