The Indian rupee has hit a record low of 84.66 against the US dollar

The Indian rupee tumbled to its weakest closing level of 84.86 per US dollar on Monday on higher domestic trade deficit and a rise in US bond yields, traders said.

The rupee weakened by seven paise to 84.86/$1 against its previous close of 84.79/$1, LSEG data showed.

The local currency had touched a level of 84.88/$1 earlier in the day, but closed ever stronger, as the Reserve Bank of India intervened in the currency market to prevent excessive volatility, traders said.

The 10-year US Treasury yield was trading at 4.38% after rising 7 basis points on Friday. India’s merchandise trade deficit widened to $37.84 billion in November – the highest ever – exceeding economists’ expectations, a Reuters poll showed. The merchandise trade deficit in October was $27.14 billion.

“There is continued dollar buying and all trade deficit figures point to a worsening current account deficit and the Indian rupee is unlikely to strengthen from here. Also, REER is also on the high side, so the Reserve Bank of India will not allow the rupee to appreciate. Today, RBI was protecting the 84.86/$1 level,” said Anil Bhansali, head of treasury at Finrex Treasury Advisors.

Market participants are now looking to the US Federal Reserve’s Federal Open Market Committee on December 17-18 to determine the path to interest rate cuts in the world’s largest economy.

Most participants expect a 25 basis point cut by the US Fed, with a 97% probability, according to CME’s FedWatch tool.

Separately, the yield on the benchmark 10-year Indian government security closed at 6.74%, up two basis points from its previous close of 6.72% as the domestic trade deficit hit an all-time high, bond dealers said.