Rupee hits new all-time low of 84 against US dollar amid weak forex flows

The Indian rupee weakened further on Friday to breach the 84 mark against the US dollar, hitting a new historic low closing level. According to data from the Foreign Exchange Dealers' Association of India (FEDAI), the domestic currency settled at 84.071 per dollar, lower than its previous close of 83.9775.

The rupee's continued depreciation came on the back of persistent foreign capital outflows and strong demand for dollars amid rising geopolitical tensions. India has witnessed significant selling pressure from overseas investors over the past week, with foreign portfolio investors withdrawing over $7.5 billion from the local equity markets alone in the previous nine trading sessions.

Additionally, crude oil prices saw an uptick, trading around 10% higher for the month of October, putting more pressure on the rupee. Brent futures were down marginally on Friday to $78.95 per barrel. India is one of the largest importers of oil globally, so higher crude prices widen its trade and current account deficit.

The ongoing foreign fund outflows have contributed to the widening gap in the rupee-dollar exchange rate. While the Reserve Bank of India (RBI) stepped in to sell dollars on Friday to curb excess volatility in the market, analysts believe weakness in the currency will likely continue in the near future. However, the central bank's substantial foreign exchange reserves of over $701 billion provide assurance against major rupee fluctuations.

Going forward, participants will be keeping a close watch on US Federal Reserve policy moves and trends in portfolio capital flows for cues on the rupee's trajectory. With little respite seen so far on the external fronts weighing on the currency, the domestic unit may face further depreciation pressure against the US dollar.