The Indian rupee hit a record low on Monday against the US dollar, reflecting broader weakness among Asian currencies under pressure following Donald Trump’s victory in the U.S. elections. Persistent foreign fund outflows from Indian equities further weighed on the rupee's value.
In early trading, the rupee fell to a historic low of 84.3875, slightly below its previous record of 84.38 reached last Friday.
Most Asian currencies were trading lower, down between 0.1% and 0.4%. The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.05% at 105.05, near the four-month peak achieved last week following Trump’s win.
The US dollar index (DXY) rose by 3.3% over the past month (up to November 07), driven by higher US Treasury yields, as markets started to price in the likelihood of a Donald Trump presidency.
Analysts believe a stronger dollar under a Trump administration is likely to maintain a weakening pressure on the rupee in the near term.
According to Amit Pabari, MD, CR Forex Advisors, while Trump’s policies initially sparked a bullish trend for the dollar, his previous term offers insights.
“In 2017, the DXY was near 101.50 at the start of his presidency, but by late 2018, it had slipped to a low of 88.12. When he left office in 2020, it was trading around 90.58, suggesting that Donald Trump isn’t necessarily in favor of a strong dollar. Along with this, the greenback faces fresh challenges, including rising debt, unresolved trade tensions, and anticipated Fed rate cuts in 2025, which could steer the DXY index toward the 102–100 range,” said Pabari.
Analysts at CareEdge Ratings are of the view that the rupee is expected to face less pressure compared to the Chinese yuan, which could bear the brunt of Trump’s proposed 60% tariff, or other Asian currencies with significant exposure to China.
Overseas investors have pulled out a net of about $2.5 billion from Indian equities over November so far, adding to the $11 billion of outflows in October.
“This trend reflects the overvaluation of Indian equities and disappointing Q2 earnings. Looking ahead, the rupee is likely to remain under pressure unless there is a softening in the dollar index or a slowdown in FII outflows,” Pabari said.
In the medium term, he expects the rupee to trade within the 83.80 to 84.50 range, as the Reserve Bank of India (RBI) seems to cap the downside of the local currency with sufficient forex reserves in its kitty.
India's forex reserves declined by $2.675 billion to $682.13 billion for the week ended November 1, the RBI said on Friday.
However, in the medium term, analysts expect FPI inflows into India to return once there is greater clarity on Trump’s policies, which should help ease pressure on the rupee.
“Additionally, passive inflows from India’s inclusion in global bond indices could provide some support. Currency pressures could also ease if crude oil prices remain in check or decline under Trump’s presidency,” CareEdge said.
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