The Indian rupee declined to its weakest closing level on record on Monday hurt by a rise in U.S. bond yields, weakness in the Chinese yuan and data which showed that India's merchandise trade deficit widened to a record high in November.
The rupee closed at 84.8625 against the U.S. dollar, down nearly 0.1% on the day.
India's merchandise trade deficit (INTRD=ECI) rose to $37.84 billion in November, according to a Reuters calculation based on export and import data released by the government. Economists had expected the deficit to be $23.9 billion, according to a Reuters poll.
In October, the merchandise trade deficit stood at $27.14 billion.
A decline in the yuan and elevated U.S. bond yields had weighed on the rupee through the session and the currency declined further after the trade data was released close to the end of the session.
The dollar index was slightly higher at 106.9 while the offshore Chinese yuan slipped 0.2% to 7.29 per dollar.
The 10-year U.S. Treasury yield was little changed in Asia trading at 4.38% after rising 7 basis points on Friday while the 1-year Treasury yield rose to 4.27% with investors' focus turning to the Federal Reserve policy decision due on Wednesday.
"While there's potential for a short-term pullback in USD due to year-end seasonality and stretched positioning, any dips may be seen as a buying opportunity," Charu Chanana, chief investment strategist at Saxo, said in a note.
The Fed is widely expected to cut rates by 25 basis points this week and investors will keep an eye on any hawkish revisions to policymakers' interest rate projections.
Analysts reckon that incoming U.S. President Donald Trump's policies may renew inflationary pressures in the world's largest economy and potentially slow the pace of future rate cuts by the Fed.
