Rupee Falls to Record Low Near 96.9, Eyes 100 Mark

The Indian rupee fell to a record low near 96.9 per U.S. dollar on Wednesday, with traders increasingly watching the 100-per-dollar level.

The drop extended an eight-session losing streak and left the rupee about 6% weaker since late February, when it traded near 87 per dollar. The currency has lost more than half its value against the dollar since 2009.

Market participants cited higher crude oil prices, a stalled U.S.-Iran conflict that has disrupted shipping through the Strait of Hormuz, and rising U.S. Treasury yields as drivers of the decline.

Foreign portfolio investors have withdrawn more than $22 billion from Indian equities so far this year, increasing conversion pressure on the rupee.

Asset managers including Aberdeen, MetLife Investment Management and Gamma Asset Management flagged the risk of further weakness if the geopolitical standoff continues. Rajeev De Mello, global macro portfolio manager at Gamma Asset, warned, ‘The rupee remains vulnerable to further depreciation, and 100 against the dollar is an important psychological threshold that investors will increasingly focus on. The most immediate catalyst for a break of the level would be another leg higher in oil prices.’

New Delhi has raised fuel prices and increased duties on gold imports to curb dollar outflows. Prime Minister Narendra Modi urged citizens to conserve fuel and avoid non-essential foreign travel.

Economists at Citigroup, led by Samiran Chakraborty, expect the government may introduce additional measures, including possible curbs on outward business investment, to slow the rupee’s fall.

With the Strait of Hormuz effectively closed and U.S. yields elevated, market participants expect little near-term relief; a diplomatic resolution or a change in U.S. monetary policy would likely ease dollar strength and reduce pressure on the rupee.

The rupee’s slide increases India’s oil import bill and raises demand for dollars to pay for imports.