The rupee slipped 33 paise to close at a fresh lifetime low of 74.39 against the US dollar today on high crude oil prices, strengthening of the US dollar and unabated foreign fund outflows.
It finally closed at 74.39 against the US dollar, down by 33 paise, marking its sixth straight session of decline.
The Indian rupee hit its fresh all-time low against the US dollar as brent crude oil prices rose back above the $84 per barrel in the international oil market.
The rupee breached its earlier all-time low of 74.22 hit on October 5 and fell to 74.27 level against the US currency in afternoon trade today.
Brent crude oil prices were trading at $84.86 per barrel, up 1.13% from their previous close, putting pressure on the home currency.
The rupee has fallen 16.83% since the beginning of this year on burgeoning current account deficit, rising crude oil prices and an increase in dollar strength.
The US dollar strength against major global currencies weighed on the rupee sentiment. The US dollar index stood at 95.76, up 3.95% since the beginning of this year.
On Monday, the Indian currency slumped 30 paise to close at a fresh lifetime low of 74.06 against the US dollar.
The rupee had opened lower by 14 paise against Friday's close of 73.76 in early trade as the US dollar strength against major global currencies weighed on the rupee sentiment.
Here's a look at factors why rupee fell to its fresh all-time low in trade today.
Brent crude price
A rise in brent crude prices has also adversely affected the rupee. The brent crude oil price has risen 30.23% from 66.57 level since the beginning of this year.
It touched an all time high level of 86.74 level recently.
India is 81 per cent dependent on imports to meet its oil needs and is the third-largest importer of crude after US and China.
Since payment of crude oil prices is done in dollars, a higher crude rate leads to more amount of rupee being converted to dollar, thereby strengthening the US currency.
FII outflows have affected the home currency. FIIs have withdrawn Rs 13,778 crore from the Indian market in the last five trading sessions.
On Monday, they pulled out investment worth Rs 4,420 crore from Indian capital markets.
Overseas investors pulled out a massive ?21,034 crore from the capital markets in September, making it the steepest outflow in four months, on widening current account deficit amid global trade tensions.
The latest withdrawal comes following a net infusion of close to ?5,200 crore in the capital markets (both equity and debt) last month and ?2,300 crore in July.
Outflow of funds from the Indian market leads to a fall in the value of rupee since there is more demand for dollars from foreign investors after exiting the Indian market.
Current account deficit
A burgeoning current account deficit (CAD) has become a big worry for the home currency.
CAD in the first quarter of this fiscal widened to $15.8 billion, which is around 2.4 per cent of the country's Gross Domestic Product (GDP), as compared with $15 billion in the corresponding quarter a year before.
In the January-March quarter, the trade shortfall stood at 1.9% of the GDP.
A rise in the current account deficit leads to depreciation in the value of rupee since more quantity of local currency needs to be utilised for payment of higher imports
Federal Reserve rate hike
The Federal Reserve raised a key interest rate for the third time this year in response to a strong US economy and signaled that it expects to maintain a pace of gradual rate hikes.
The Fed on September 26 lifted its short-term rate - a benchmark for many consumer and business loans - by a quarter-point to a range of 2 percent to 2.25 percent.
It was the eighth hike since late 2015. A rate hike by Federal Reserve will lead to a rise in US treasuries yield and act as an incentive for foreign funds to park their money into the US markets since they will get higher returns for their investment.
This will lead to foreign fund outflows from the Indian market as rate hike will lower investment returns for foreign investors and prompt them to sell. That will be bad news for rupee since the dollar will become stronger in the global currency market.