The Indian rupee today hit a near-record low of 77.24 against the US dollar, this being the third day of a continuous fall in the value of the Indian currency. The rupee had yesterday plummeted by 54 paise to close at a record low of 77.44 against the US dollar under the pressure of the strength of the American currency abroad and unabated foreign fund outflows.
On 6 May, the rupee had nosedived by 55 paise to close at 76.90.
Forex traders and market trackers said risk appetite had weakened amid rising bond yields in the US and increasing concerns for inflation that may trigger more aggressive rate hikes by central banks across leading economies.
With the reduced value of the rupee, the import-heavy economy of India will be paying more for its imports, thereby raising the cost for local businesses and consumers. While a cheaper rupee generally makes exporters happy, as foreigners find their goods cheaper, what is always cheap or cheap for a long time loses its appeal to the buyer.
Because dollar is getting stronger, rupee isn’t
The research analyst (currency and energy) at Anand Rathi Shares and Stock Brokers, Royce Vargheese Joseph cited the stronger position of the dollar, sharp sell-off in equity markets and elevated crude prices and rising domestic inflation as reasons behind the decline of the Indian Rupee, according to a PTI report.
Joseph said the Indian Rupee spot had plunged to record lows, following the weakness in Asian peers amid a stronger dollar index and surging treasury yields in the US.
“Rupee fell to fresh all-time lows yesterday as the dollar rose broadly against its major crosses. Last week’s central bank policy action led to heightened volatility in most of the currencies. A stronger dollar and sustained up move in global crude oil price is weighing on the overall market sentiment,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services, PTI reported.
Rupee to dollar
“We expect the USDINR (Spot) to trade with a positive bias and quote in the range of 77.20 and 77.80,” Somaiya said.
“Meanwhile, RBI’s off-cycle meeting on 4 May did little to strengthen the rupee. hereon, we might see the rupee spot weakening towards 77.8 levels,” Joseph said.
“I look at the rupee continuing its downward journey as the dollar rise is a major risk to prices. A relief on the rupee front can only be seen if the dollar index cools off,” Trivedi said.
Equity markets witnessed a sharp sell-off as real rates in the US turned positive and investors turned risk-averse evaluating the need for a higher rate hike to tame inflation going forward, Joseph said.
Elevated crude prices and rising domestic inflation, well above Reserve Bank of India’s (RBI) upper band, might prompt further FII selling from domestic securities, Joseph elaborated.
Somaiya further said that this week, the focus will be on inflation data from India and the US.
According to Jateen Trivedi, Senior Research Analyst at LKP Securities, “Dollar staying above USD 104 indicates FII’s aggressively exiting from emerging markets, the higher volatility index indicates no trend is sustainable and due to higher inflation, aggressive liquidity squeeze from central banks pressures rupee altogether. Crude prices have also been rising for a month now, making the rupee even weaker.”