Indian rupee weakens to lifetime low of 86.2 per USD
What's the story
The Indian rupee opened at a record low of 86.20 against the US dollar, depreciating five paise from its previous close.
The decline comes after a three-day streak of record lows for the rupee, which closed at 85.97 per dollar on Friday.
The rupee's fall past the psychologically significant mark of 86 per dollar is due to a surge in oil prices and an over two-year high in the dollar index.
Market trends
Rupee's performance in offshore market and RBI's intervention
The rupee also breached the 86 mark in the offshore non-deliverable forwards market on Friday, its 10th consecutive weekly loss.
This week, it slipped by 0.2% amid a strong dollar and continued capital outflows.
Amit Pabari, managing director at CR Forex Advisors, said while RBI usually intervenes during sharp rupee declines, liquidity shortages can restrict its dollar-selling ability without worsening the deficit.
Dollar strength
Dollar index reaches 2-year high amid job growth
The dollar index, which measures the strength of the US currency against six major currencies, hit 109.97 on Friday - its highest since November 10, 2022.
The increase was prompted by data indicating that the US created more jobs than expected and a rise in one-year inflation expectations.
Kunal Sodhani, vice president at Shinhan Bank, emphasized that "US Non-farm Payrolls headline data came in at 256,000 new workers against the 227,000 in November."
Rate cut speculation
US job data sparks speculation on Federal Reserve's rate cuts
The strong job data from the US has led to speculation that the Federal Reserve may introduce fewer rate cuts than earlier expected.
Sodhani said, "The CME FedWatch Tool is projecting a 93.1% chance that interest rates will be kept unchanged at current levels in the January meeting."
Traders now expect the Fed to cut interest rates by just 30 basis points this year, against cuts worth about 45 basis points before the Non-farm Payroll report.
Oil prices
Crude oil futures surge amid US sanctions on Russian supplies
Crude oil futures jumped to $81.49 per barrel, their highest since October 28, 2024, in Asian trade.
The increase comes on the back of a worsening supply outlook after fresh US sanctions on Russian oil supplies.
The aggressive sanctions target two large exporters from Russia, insurance companies, and over 150 tankers—a move expected to affect imports to India and China.
Investor withdrawal
Foreign investors withdraw over $3 billion from Indian assets
Along with the stronger dollar, foreign investors have withdrawn more than $3 billion from Indian stocks and bonds this month. This withdrawal is also contributing to the rupee's depreciation.
The sell-off is driven by concerns over new US President's policies which have pushed up US bond yields and made dollar-denominated assets more attractive.
Meanwhile, the rupee's volatility has increased in recent weeks, coinciding with a change of leadership at the RBI.