The Indian rupee fell to its weakest level on record on Thursday, hurt by outflows from local equities and on expectations that Donald Trump's victory in the U.S. presidential race may boost the dollar going forward.
The rupee fell to an all-time low of 84.3775 during the session before ending at 84.3725, down 0.1% from its Wednesday's close at 84.28, its previous record low.
While most Asian currencies rose on Thursday and the dollar index dipped 0.2% to 104.9, the rupee was unable to benefit due to strong dollar demand from foreign banks, likely on behalf of custodial clients, traders said.
Foreign investors are "pulling out yet again," keeping the rupee under pressure, a foreign exchange salesperson at a large overseas bank said.
Benchmark Indian equity indexes, the BSE Sensex (.BSESN) and Nifty 50 (.NSEI), ended lower by over 1% each. Overseas investors have pulled out more than $1.5 billion from local stocks so far in November, adding to $11 billion of outflows in the previous month.
State-run banks were "mildly present on offer (on USD/INR)," which helped limit the currency's decline, a trader at a private bank said.
The Reserve Bank of India has routinely intervened via state-run banks to help the rupee avert sharp declines, contributing to the currency's muted implied volatility compared to its regional peers.
While the rupee "is seeing an airpocket in terms of foreign equity inflows right now, we think RBI will likely remain strongly in the market to cap FX volatility," MUFG Bank said in a note.
Focus now turns to the U.S. Federal Reserve's policy decision due post-midnight IST.
The Fed is widely expected to cut rates by 25 basis points, while investors will pay attention to Chair Jerome Powell's commentary for cues on the future policy path.
