INR: Indian rupee hits record low on month-end dollar demand

The Indian rupee (INR) fell to a record low on Monday, pressured by month-end corporate US Dollar (USD) demand, although likely intervention from the Reserve Bank of India helped avert further losses.

The Indian rupee closed at 83.7275 against the U.S. dollar, unchanged from its close on Friday, after hitting an all-time low of 83.74 earlier in the session.

Factors such as outflows from local equities, volatility in the Chinese yuan and tepid risk appetite have contributed to weakness in the rupee in recent sessions. The currency has hit all-time lows in five out of the last six trading sessions.

The dollar index was up slightly at 104.5 while most Asian currencies gained between 0.1% and 0.8%.

The RBI likely sold dollars via state-run banks, in order to cap weakness in the rupee, traders said.

While the central bank has been intervening to support the rupee, the dollar sales have been “passive,” suggesting that it wants depreciation to occur gradually instead of pushing the currency higher, a foreign exchange salesperson at a private bank said.

Meanwhile, dollar-rupee forward premiums jumped, with the 1-year implied yield up 5 basis points (bps) at 1.83%, its highest level since February, aided by the decline in U.S. bond yields.

The 1-year U.S. Treasury yield was little changed at 4.81% in Asia trading, after falling 4 basis points on Friday in light of data that signalled inflationary pressures in the U.S. are moderating.

Policy decisions from the U.S. Federal Reserve, the Bank of England and Bank of Japan are in focus this week.

The Fed is expected to keep rates unchanged on Wednesday, but investors will pay attention to remarks from Chair Jerome Powell for cues on the future path of policy rates.

“We have a bearish bias on (the dollar index) this week and wouldn’t be surprised to see a move below 104.0,” ING Bank said in a note.