The rupee collapsed to a new all-time low on Monday, marking its weakest close for the third straight session, as the dollar charged ahead, leaving behind a slew of currencies at lifetime or multi-year lows driven by fears that aggressive policy tightening by major central banks would hurt economic growth.
Bloomberg showed the rupee was last at 81.5675, after crashing to a new record low of 81.5225 and having crashed to 81.6612, its weakest ever, during the session on Monday.
PTI reported that the rupee plunged 54 paise to provisionally close at a new all-time low of 81.63 against the US dollar.
On Thursday and Friday, the domestic currency had ended at its lowest ever, and today it marks record low levels breached for the third session in a row.
"The panic is created by the dollar index which witnesses strong buying as a strong hedge against interest rate hikes and inflation cycle. The rupee downtrend will continue as long as positive triggers are not witnessed from the inflation forefront," Jateen Trivedi, Vice President - Research Analyst at LKP Securities, told ANI.
"The next trigger for the rupee next week is the RBI policy which shall provide some respite to the rupee fall. The rupee range can be seen between 80.50-81.55 before RBI policy," he added.
Later in the week, the Reserve Bank of India is set to raise rates too, but by how much has split policy watchers widely.
Due to the RBI's market intervention to protect the weakening rupee and for the country's trade settlement, India's foreign exchange reserves have been steadily declining for the past few months. Another potential explanation for the rupee's decline is this depletion.
The Indian rupee is likely to remain weaker as investors expect that the US Fed will continue to hike interest rates aggressively to cool inflation, Sriram Iyer, Senior Research Analyst at Reliance Securities, told PTI.
"Focus now shifts to RBI's meeting this week, with its decision due on Friday. We expect RBI to hike rates by 50 bps to cool stubbornly high inflation and prevent the currency from weakening further," Mr Iyer added.
A dollar gauge rose to yet another record, leaving the yen just short of last week's point that drew intervention from Japanese authorities.
The yuan edged closer to the weak end of its trading band even as China brought back a tool to make it more expensive to gamble against the currency via onshore derivatives. The Korean won traded at its lowest level since 2009.
"It's a king US dollar -- we've been seeing currencies across Asia come under pressure," Sian Fenner, senior Asia economist for Oxford Economics, said on Bloomberg TV. "It's adding to inflationary pressures and more central banks raising rates more than we have historically seen."
The worst hit was the British pound, the latest ill omen as market stress rises.
The fallout from last week's UK budget statement roiled markets for a second day on Monday, sending the pound to a record low.
Sterling fell almost to 5 per cent at one stage during the Asian trading day, breaking through the lows of 1985 and reaching $1.0327. Thinner liquidity in the Asia session worsened movements, and the currency had last climbed to $1.072.
"The market is now treating the UK as if it's an emerging market," said Rabobank strategist Michael Every in Singapore.
"If this carries across into European trading, you're going to get at a minimum a public statement from the BOE threatening (action) and...a strong possibility that they have to make an inter-meeting hike and a chunky one at that."
The dollar rally is also a reflection of investors increasing flight-to-safety bets as Asian markets risk experiencing crisis-level stress again, as two of the most significant currencies in the region have collapsed under the assault of unrelenting dollar strength - the yen and the yuan.
Due to the widening gap between the ultra-hawkish Federal Reserve and the dovish policymakers in China and Japan, the yuan and the yen are falling.
The drop in the yuan (renminbi) and the yen is making matters worse for everyone and endangering the region's reputation as a top destination for risk investors. At the same time, other Asian countries heavily rely on their foreign exchange reserves to offset the effects of the dollar.
"The renminbi and yen are big anchors, and their weakness risks destabilizing currencies to trade and investments in Asia," Vishnu Varathan, head of economics and strategy at Mizuho Bank, told Bloomberg.
"We're already heading toward global financial crisis levels of stress in some aspects; then the next step would be the Asian financial crisis if losses deepen," he added.
If the decline in the currencies of the two largest economies in the region causes foreign investors to withdraw money from Asia, a full-fledged crisis could develop.
The declines could spark a vicious cycle of competitive devaluations, a drop in demand, and a loss of consumer confidence.
"Currency risk is a bigger threat for Asian nations than interest rates," Taimur Baig, chief economist at DBS Group in Singapore, told Bloomberg. "At the end of the day, all of Asia are exporters, and we could see a reprise of 1997 or 1998 without the massive collateral damage."
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