Exposure to short-term portfolio flows, a rising oil import bill and slowing export growth have heightened the risk on the rupee and the outlook remains bearish.
There is also the increasing likelihood the US super committee will fail to reach a deal on debt restructuring, which could trigger another major round of selling of emerging market and risky assets.
At 10:40 a.m. (0510 GMT), the rupee was at 52.58/59 per dollar, after touching an all-time low of 52.73, and 0.8 percent weaker than its previous close of 52.1550/1650.
At its record low, the rupee has slumped 16.8 percent from its 2011 high reached in late July.
"The outlook for the rupee continues to look weak at this point. The next technical level on the chart shows 55.11," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank in Mumbai.
"There is all-round demand coming in from all quarters and there are unlikely to be any ranges for the market now."
The one-month offshore non-deliverable forward contracts were quoted at 52.99, sharply below the onshore spot rate, indicating a bearish outlook in the near term.
One NDF trader said the breach of the previous record low of 52.20 low had caused nervousness and people were seeing this as a vicious circle with everyone -- including oil importers -- jumping in.
"These kind of moves stop only on strong and persistent regulatory action ... guess the RBI will have to do something big to stop it."
The Reserve Bank of India (RBI), which usually intervenes to curb excess volatility, has been reluctant to step in and support the beleaguered currency.
Subir Gokarn, a deputy governor at the central bank, said last week the RBI would be careful about using foreign exchange reserves aggressively to protect the rupee's depreciation.
"The RBI's efforts to cut the excessive one-way move have been futile," said J. Moses Harding, head of the asset liability committee, and market and economic research at IndusInd Bank.
"There is not a single factor to bring the rupee bulls into street who were in total control till July."
The central bank was suspected to have sold dollars at around 51.79 on Monday, but the selling pressure on the rupee was too high for it to contain the drop, traders said.
A senior government official said on Monday said the ability of monetary authorities to stem the rupee's slide was limited.
"Given the dollar liquidity squeeze in the system, FX forward premiums will remain low to cover liquidity premium and higher credit spread," IndusInd's Harding said.
"The shift of credit from foreign currency to rupee has added to squeeze of rupee liquidity. Both these factors would limit the RBI's ability to intervene both in the spot and forward market," he added.
The RBI had intervened in the foreign exchange market in September, after following a hands-off approach for nine straight months, its bulletin showed earlier this month.
The rupee is being hammered by weak fundamentals like a widening current account deficit and subdued portfolio flows given the weak sentiment in equities.
Foreign portfolio investors have bought equities worth $393 million so far this year, sharply lower than $29 billion they invested in 2010, data from the Securities and Exchange Board of India's website showed.
U.S. lawmakers abandoned their high-profile effort to rein in the country's ballooning debt on Monday in a sign that Washington likely will not be able to resolve a dispute over taxes and spending until 2013.
This could further dampen the main stock index, which has lost more than a fifth of its value this year.
Source : ET