The Indian rupee weakened to yet another all-time on Wednesday, hurt by the continued unwinding of carry trades and on dollar demand from local importers.
The rupee fell to its record low of 83.9725 to the dollar before closing at 83.9550, its weakest closing level ever.
The currency has hit record lows for four straight sessions, prompting intervention from the central bank as well as instructions to select large banks to avoid excessive speculation against the rupee.
The Reserve Bank of India likely sold dollars on Wednesday, helping limit losses, traders said.
"A run up to 84 (on USD/INR) may create slight panic in the market which is likely why RBI is not allowing it to jump higher," a foreign exchange trader at a private bank said.
The local currency has been hit by investors exiting carry trades that used the Chinese yuan and the Japanese yen to fund long bets on the rupee.
This has likely led to persistently strong bids on the dollar-rupee pair in the non-deliverable forwards market, a Singapore-based fund manager said.
The fund manager expects the rupee to stay under pressure in the near-term but said the RBI is unlikely to allow sharp declines.
The dollar index rose 0.3% to 103.3 and U.S. bond yields ticked higher with the 10-year Treasury yield up 4 basis points at 4.02%.
The Japanese yen and the offshore Chinese yuan declined 2% and 0.4%, respectively, amid a mixed performance by Asian currencies.
While volatility in global markets has eased, "a return to a low macro and FX volatility regime may not be possible, given the risk of a broader slowdown in the US economy, monetary policy divergence, and geopolitical tensions in the Middle East," MUFG Bank said in a note.
