The rupee slumped to a record low, after opening significantly weaker against the greenback driven by more policy 'pain' statements from major central banks even at the cost of economic slowdown or recession, driving the dollar to a new two-decade peak.
PTI reported that the domestic currency depreciated 31 paise to an all-time low of 80.15 against the US dollar in early trade on Monday tracking the strength of the greenback and firm crude oil prices.
At the interbank foreign exchange, the rupee opened at 80.10 against the dollar, then lost ground to quote at 80.15, registering a fall of 31 paise from the last close of 79.84 on Friday, according to PTI.
According to Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors, the rupee opened on a weak note after a hawkish Mr Powell kept US rate hikes in prominence until inflation falls to 2 per cent.
"With 80 being allowed to be crossed over by RBI, its actions will be watched closely by traders. The next important events are PMI and NFPR of the US which will give an indication as to how the economy and labour markets are behaving," Mr Bhansali said.
Bloomberg quoted the rupee at 80.0363 compared to its previous close of 79.8712.
But analysts said, foreign portfolio investments and the Reserve Bank of India could limit the rupee's damage.
In a note, “rupee breaches 80/$ mark" said Anindya Banerjee, VP for Currency Derivatives & Interest Rate Derivatives at Kotak Securities.
"A strong US dollar Index, high US bond yields with an deeply inverted yield curve and weak equity markets all makes it challenging for FPI and carry trade flows in EMs. However, the speed of the up move will be closely regulated by RBI," he said.
"The RBI has twin objectives of not letting the rupee become a weak outlier and also, they do not want the USDINR to become too volatile. This means they may continue to sell USD as the spot and forwards moves to a fresh all-time high. However, this may not alter the trajectory of the pair and the path of least resistance would remain upward," added Mr Banerjee.
The dollar index scaled to a fresh two-decade peak of 109.4 in early Asia trade, with greenback strength pushing other major currencies to new lows and putting pressure on its emerging markets counterparts.
Today's moves extended dollar gains made on Friday when US Federal Reserve Chair Jerome Powell warned there'd be "some pain" for households and businesses as it will take time for the Fed to control inflation.
"Powell made it clear that there is no dovish pivot as some market participants had expected," Carol Kong, senior associate for currency strategy and international economics at Commonwealth Bank of Australia, told Reuters.
"I think for this week, the (US dollar index) is going to track even higher towards 110 points, just as market participants continue to price in more aggressive tightening cycles by the major central banks."
What did not help the rupee is the bloodbath in domestic equities, with the Sensex crashing over 1,000 points and the rising crude prices.
Still, crude oil prices climbed as expectations OPEC will cut output if needed to support prices, conflict in Libya, and rising demand amid soaring natural gas prices in Europe helped offset a dire outlook for growth in the United States.
US West Texas Intermediate (WTI) crude futures jumped $1.09, or 1.2 per cent, to $94.15 a barrel at 0241 GMT, adding to a 2.5% gain last week.
Brent crude futures rose 89 cents, or 0.9 per cent, to $101.88 a barrel, extending a 4.4 per cent gain last week.
"Oil prices were stronger amidst the ongoing pressure on fuel demand from Europe's energy crisis, and supply constraints," National Australia Bank commodities analysts said in a note.
Heavy clashes in Libya's capital which killed 32 people on the weekend sparked concern that the country could slide into a full-blown conflict, which could again disrupt crude supply from the OPEC nation, they said.
Prior to Friday's hawkish remarks from Federal Reserve Chairman Jerome Powell that the United States faced a protracted period of weak growth amid more rate hikes, both crude benchmark contracts had traded lower. The dollar had risen as a result.
"While a strong dollar restrains broad commodity prices, the undersupply issue in the oil markets will probably continue to support the upside bias," CMC Markets analyst Tina Teng, told Reuters.