Rupee hits record low amid dollar demand surge from oil firms

The rupee plummeted to a record low on Wednesday, driven by aggressive dollar bids from oil companies, importers, and equity-related outflows. Despite the currency's downward spiral, potential central bank intervention curtailed further losses, according to traders.

Closing at 83.3725 against the US dollar, the rupee saw 0.1 per cent decline compared to its previous close at 83.28. In the last hour of trading, it tumbled to an all-time low of 83.45.

Meanwhile, the Reserve Bank of India (RBI) intervened by selling dollars through at least three state-run banks, effectively halting further depreciation, as confirmed by a trader from a foreign bank.

As the session progressed, offers dwindled following the rupee's breach of the 83.40 mark, surpassing its previous low of 83.43 observed on Friday, as remarked by a foreign exchange trader at a private bank.

Moreover, to forestall additional depreciation after the close of domestic trading, the RBI likely engaged in the non-deliverable forwards (NDF) market, as noted by two senior traders at state-run banks. The rupee had previously witnessed a decline in the NDF market during Friday's session.

The rupee's decline was exacerbated by the weakening offshore Chinese yuan and Japanese yen, with the yen plummeting to a 34-year low, prompting warnings of intervention from Japan's finance minister.

Meanwhile, the dollar index remained relatively unchanged at 104.3, and U.S. bond yields remained stable during Asian trading hours.

Analysts anticipate sustained pressure on the rupee due to weakness in Asian currencies; however, they anticipate a moderated decline owing to the RBI's intervention efforts. Dilip Parmar, a foreign exchange research analyst at HDFC Securities, foresees the rupee weakening to levels between 83.50 to 83.70 in the near term if pressure persists.

Investors are keenly awaiting remarks from Federal Reserve Governor Christopher Waller later in the day for insights into the Fed's stance on potential rate cuts.

(With Reuters inputs)