The Indian rupee ended marginally lower on Tuesday as weakness in Asian currencies and importers' demand for dollars pushed the rupee back to its lowest level on record.
The rupee closed at 83.9250 against the US dollar, approaching its all-time low of 83.9725 hit earlier this month. It had closed at 83.90 in the previous session.
Asian currencies weakened, with the Philippine peso the top loser, down 0.5%, while the dollar index was at 100.8, near its lowest level since December.
A foreign exchange salesman at a foreign bank said while dollar demand from importers remains strong, the rupee remains under pressure due to a lack of strong inflows and exporters refraining from selling dollars.
Asian currencies have risen 0.2-5% since the start of August, but the rupee's gains have been temporary. Meanwhile, the dollar has fallen 3% this month ahead of the start of interest rate cuts in the U.S. next month. Investors are now expecting the Federal Reserve to ease policy by the equivalent of 100 basis points through 2024. “The consensus is to sell the dollar strong in the FX market in the near term, but the rally has not been significant enough to warrant selling,” Societe Generale said in a note. The dollar's future direction will depend on labor market data in early September, the note said.
Investors are awaiting the U.S. Non-Farm Payrolls report on September 6 to determine whether the Federal Reserve will cut interest rates by 50 or 25 basis points (bps).
Meanwhile, the rupee is unlikely to benefit much from a weaker dollar as the Reserve Bank of India is expected to step in to prevent excessive appreciation of the already overvalued local currency.
