New Delhi: The rupee plunged 36 paise to close at an all-time low of 87.43 against the US dollar on Wednesday, as global trade war concerns fuelled risk aversion among investors.
Forex traders said the rupee is trading with a negative bias over global trade war as market participants mulled the impact of tariffs being imposed by the United States and China.
Moreover, rate cut concerns by the Reserve Bank of India and broad strength of the American currency in the overseas market dented investor sentiments further.
At the interbank foreign exchange, the rupee opened on a weak note at 87.13 and touched an intraday low of 87.49 against the American currency during the session.
The local unit finally settled at a record closing low of 87.43, lower by 36 paise over its previous close.
On Tuesday, the rupee recovered 4 paise from its all-time low level to close at 87.07 against US dollar.
Anuj Choudhary - Research Analyst at Mirae Asset Sharekhan, said the rupee touched a fresh all-time low on rising odds of a rate cut by the Reserve Bank of India in its monetary policy meeting.
"We expect the rupee to trade with negative bias amid importer demand for dollars and ongoing uncertainty over US trade tariffs. Escalation of the tariff war may dampen global risk sentiments and raise safe haven demand for the US dollar," Choudhary said, adding that traders may take cues from non-farm employment and ISM services PMI data from the US.
Trump is pressing ahead with a 10 percent tariff on US companies importing things from China. On Tuesday, China retaliated by announcing its own tariffs on some US products and an antitrust investigation into Google.
Trump on Monday held off on his tariff threats against Mexico and Canada for 30 days after they pledged to boost border enforcement.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.35 percent lower at 107.58.
"Despite the dollar index easing below 108 in recent days, rupee weakness persisted due to trade uncertainty and continued FII outflows," said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.
"Going forward, rupee is expected to weaken towards 87.75, with any pullback facing resistance near 87.15. Market participants will closely watch further tariff escalations and their impact on global risk sentiment," he added.
Brent crude, the global oil benchmark, fell 0.51 percent to USD 75.81 per barrel in futures trade.
The Monetary Policy Committee (MPC) of the Reserve bank of India (RBI) began its three-day meeting on Wednesday. The MPC will announce its policy decisions on February 7.
There are expectations of a 25 basis-points rate cut in benchmark policy rates, which will be the first in five years, as inflation remains within the central bank's comfort zone.
The Reserve Bank had last reduced the repo rate by 40 basis points to 4 percent in May 2020 to help the economy tide over the crisis following the outbreak of the Covid pandemic and subsequent lockdown.
In the domestic equity market, the 30-share BSE Sensex settled 312.53 points, or 0.40 percent, lower at 78,271.28, while the Nifty fell 42.95 points, or 0.18 percent, to close at 23,696.30.
Foreign institutional investors (FIIs) offloaded equities worth Rs 1,682.83 crore in the capital markets on a net basis on Wednesday, according to exchange data.
On the domestic macroeconomic front, India's services sector activity expanded at the slowest pace in over two years in January amid softer increases in sales and output, a monthly survey said on Wednesday.
The seasonally adjusted HSBC India Services PMI Business Activity Index fell from 59.3 in December to 56.5 in January -- its lowest level since November.
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