The Reserve Bank of India probably intervened to support the local currency, traders said, while the threat of U.S. trade tariffs under President Donald Trump weighed on most Asian currencies, causing the Indian rupee to plummet to an all-time low on Friday.

The rupee's previous record low of 86.6475 earlier in the month was eclipsed when it fell to 86.65 to the dollar.

Following Trump's announcement that he would impose tariffs on Canada and Mexico on Saturday and is also considering new levies on China, the dollar index increased to 108.2, while the majority of Asian currencies fell.

Four traders said that state-run banks were seen offering dollars, probably on behalf of the RBI, which helped keep the rupee's losses to a minimum.

The rupee has been under pressure from ongoing outflows of foreign portfolios in addition to the risk posed by Trump's anticipated tariff policies. So far in January, foreign investors have sold almost $9 billion worth of local stocks and bonds.

The rupee has dropped roughly 1.2% since January and is expected to perform worse than its regional peers due to a number of challenges, including the expectation that the RBI will lower rates at its policy meeting next week.

The trajectory of the rupee is likely to be influenced in the near future by developments surrounding U.S. trade tariffs and their effect on the dollar, as well as India's federal budget announcement on February 1.

Amit Pabari, managing director of FX advisory firm CR Forex, stated that the rupee is "likely to stay volatile between the range of 86.20-86.80" in the run-up to important events.

Ahead of Friday's $5 billion 6-month dollar/rupee buy-sell swap auction, dollar-rupee forward premiums pushed higher. At 96.50 paisa, the 6-month forward premium increased marginally.

Bankers anticipate that corporate treasuries and lenders will be very interested in the swap, and the majority anticipate that the auction's premium cut-off will be close to current levels.