Rupee hits record low amid equity outflows and US election uncertainty

The Indian rupee plunged to an all-time low on November 4, reaching 84.1150 against the US dollar, as continued foreign investment outflows from Indian stocks overshadowed a weaker dollar that supported other regional currencies according to a report by Reuters.

The rupee briefly touched 84.1225 during the trading session, marking its weakest level ever, the Reuters report elaborated further.

Indian equity markets also faced significant pressure, with the benchmark BSE Sensex and Nifty 50 indices both falling more than 1 per cent, marking their worst daily performance in a month.

The indices are down nearly 8 per cent from their record highs in late September, primarily due to the ongoing exodus of foreign investors in response to a sluggish earnings season.

Despite these challenges, the Reserve Bank of India (RBI) has intervened regularly to cushion the rupee, preventing a steeper decline. The central bank’s actions, including direct market interventions, have played a key role in stabilizing the currency amid foreign outflows and elevated US bond yields.

Uncertainty looms

Further uncertainty looms as global attention shifts to the upcoming US presidential election, with potential implications for both the US dollar and Indian markets. According to sources familiar with RBI’s strategy, the central bank is prepared to manage increased volatility if Republican candidate Donald Trump secures a victory next week. Such a scenario could worsen market pressures, though the RBI is said to be well-equipped to handle any fallout.

While the US dollar index dropped by 0.2 per cent on Monday, most Asian currencies strengthened, including the offshore Chinese yuan, which rose to a near three-week high. The dollar’s weakness is attributed to investors unwinding positions ahead of the election, as they brace for potential market swings.

Market analysts predict that a victory for Trump could drive the dollar higher, but likely to a lesser extent than if Democratic candidate Kamala Harris wins. If Trump secures a win but the Democrats hold onto the US House of Representatives, the dollar might not rally at all, according to a note by ING Bank.

As the US election outcome remains uncertain, investors are wary of the potential for delayed results and its impact on global markets, adding to the pressure on the rupee and Indian equities. The coming days will be crucial as market participants digest election results and assess their broader implications for global currency and equity markets.