Rupee Touches All-Time-Low At 84.38

Amid weakness in the Asian currencies, the value of the Indian rupee fell to its all-time low of 84.3875 against the US dollar. The rupee remained under pressure on the back of Donald’s victory in the US presidential elections.

While Asian currencies were trading lower between 0.1% and 0.4%, Dollar’s strength against a basket of six currencies, was trading higher at 105.05, a four-month high.

Impact of Trump’s win on Rupee

Buoyed by higher US treasury yields, the US dollar index (DXY) grew by 3.3% in the past month. Analysts cite a stronger dollar under the Trump-led government, which is likely to maintain a weakening pressure on the rupee.

Amit Pabari, MD, CR Forex Advisors said, “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.”

On the other hand, CareEdge Ratings expects that rupee will face less pressure than the Chinese Yuan. Previously, Trump proposed to impose a tariff of 60% on Chinese imports.

Overview of FII outflows

Foreign Portfolio Investors (FPIs) wiped out nearly $2.5 billion from Indian equities in November, whereas outflows in October stood at $11 billion.

Pabari said, “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.”

He expects the domestic currency to trade within the 83.80 to 84.50 range during the medium term as the central bank has enough forex reserves to cushion the downside of rupee. Notably, forex reserves in the country dropped to $682.12 billion, a decline by $2.675 billion, for the week ended November 1, RBI said on Friday.

FIIs are set to return to normalcy once there is greater clarity on Trump’s policies.

CareEdge said, “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.”