The Indian rupee hit its lowest closing level ever on Thursday but outperformed its regional counterparts as state-run banks' dollar sales offset the impact of a rising greenback and weak local stocks. The rupee closed at 22.9959 against the UAE dirham (84.3950 against the US dollar), slightly down from its previous close of 22.9911. The currency remained almost unchanged week-on-week.
The dollar has surged following Donald Trump's victory in the US presidential election, negatively affecting emerging market assets. Trump's proposed tariffs and immigration policies could boost inflation, potentially leading to slower and fewer US rate cuts. On the day, the dollar index climbed 0.4% to its highest level in a year at 106.92, while Asian currencies fell between 0.1% and 0.7%.
Despite the strong dollar weighing on emerging market currencies, the rupee has performed better than most Asian peers in November, aided by interventions from the Reserve Bank of India. The Indian currency has declined by 0.4% this month, compared to a 2.7% drop in the Thai baht and a 1.5% fall in the offshore Chinese yuan.
India's merchandise trade deficit in October widened more than anticipated to $27.14 billion, according to data released on Thursday. Investors are now awaiting comments from Federal Reserve Chair Jerome Powell later in the day for insights into the future direction of Fed policy rates.
ING Bank noted in a report, 'A positioning-led correction in USD may struggle to push DXY back below 106.0, and interest in buying dollar dips is likely to resurface soon.' Indian financial markets will be closed on Friday for a local holiday.
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