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While continuing with its declining spree, the Indian rupee has dived to yet another record low, owing to concerns about the interest rate normalization path of the US Fed and the deteriorating growth environment which have led to a global flight to the dollar, while causing an exodus of foreign funds from the domestic markets.

The Indian rupee is still reeling under pressure even as there has been a broad rally in risk assets and the dollar index has also softened from its multi-year highs. The recent bout of weakness is caused by strong dollar demand from oil importers with crude oil prices holding steady. Crude oil prices have again surged higher after a brief period of consolidation as Saudi Arabia has not committed to increasing oil output. Besides, as the rupee hit the 80 to the dollar mark, importers and corporates with huge overseas loans are rushing to hedge their foreign currency exposure, which is acting as a key headwind for the domestic currency. Amid a backdrop of uncertainty and Europe in the grip of an acute energy crisis, markets would be closely eyeing the crucial European Central Bank monetary policy decision where it is likely that the ECB would deliver a 50bps rate hike to tame worsening inflation. A hawkish stance of the ECB would lead to further pressure on the greenback while aiding the domestic currency. On the contrary, a slightly dovish tone would mean renewed strength in the dollar index that shall further suppress the Indian rupee. Going forward, even as the rupee is inclined on a downwards trajectory, we reckon that the domestic currency is likely to find a strong cushion at the 81 mark.

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