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The partially convertible rupee weakened from the 78/$1 mark for the first time and was trading at 78.2130/$1 for the last time. On Friday, the Indian currency closed at 77.8325/$1.
Data released after Indian trading hours on Friday showed US consumer price inflation hit a fresh forty-year high of 8.6 per cent in May, against expectations of a rise of around 8.3 per cent.
A sharper-than-expected inflation print crashed global stock markets, while boosting yields on US Treasury bonds. The yield on the 10-year US Treasury bond was at 3.19 per cent, 14 basis points higher than the previous close.
Domestic equity markets also declined on Monday, further worsening the sentiment of the rupee. At 09:20 am IST Nifty and Sensex were trading with a decline of 2.4 per cent.
US data has investors worried that the Fed will have to take a more aggressive approach than ever to tackle inflation.
The US central bank, which has already raised interest rates by a cumulative 75 basis points since March 2022, is widely expected to hike rates by 50 bps at its meetings in June and July.
Traders now fear that the central bank of the world’s largest economy may hike rates by excessive amounts – a process that will drive global capital out of emerging markets such as India.
Foreign investors have already been big sellers of Indian assets over the past few months, having sold off equities worth Rs 1.8 lakh crore in 2022 so far, while selling off domestic debt worth Rs 14,055.
Finrex Treasury Advisors Head of Treasury Anil Kumar Bhansali said, “The rupee trades in a range of 77.80 to 78.20 as US inflation eases to a high of 8.3 per cent, making expectations of a 75 basis points hike in September a reality.” Is.”
“Exporters can sell close to 78.20 as 40 paise difference gives that opportunity. Importers need to wait below 78.00 to buy their near term imports.”
Dealers now want to assess the levels at which RBI will intervene in the forex market to prevent excessive volatility in the exchange rate.
The central bank, which currently has about $600 billion in foreign exchange reserves, has aggressively intervened in the money market through dollar sales over the past few months.
As a result, the rupee has outperformed many other emerging market currencies due to geopolitical disturbances.
“Overall, it has been historically observed that whenever the rupee breaks its all-time high, it usually moves up by Rs 1 to 1.5,” said Amit Pabri, MD, CR Forex Advisors.
“However, this time as the USDINR pair has broken the key level of 77.80, RBI may not allow the pair to move higher and we expect the rupee to trade between 77.80 -78.50 in the short to medium term. ”
(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. They do not represent the views of The Economic Times)
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