The Indian rupee depreciated 13 paise to a historic closing low of 80.05 per U.S. dollar on Wednesday as foreign portfolio investors continued to sell their Indian holdings and head back to the safety of the dollar and domestic oil importers too bought the U.S. currency for settling their purchases.
On Tuesday, the rupee had slid to 80.05 intraday but rebounded following intervention by the Reserve Bank of India (RBI).
Sugandha Sachdeva, vice president, Commodities & Currency Research, Religare Broking said the rupee dived to yet another record low, “owing to concerns about the interest rate normalisation path of the U.S. Fed and the deteriorating growth environment, which have led to a global flight to the dollar while causing an exodus of foreign funds from the domestic markets.”
“Going forward, even as the rupee is inclined on a downwards trajectory, we reckon that the domestic currency is likely to find a strong cushion at the 81 mark,” she said.
Ms. Sachdeva said the Indian rupee was still under pressure even as there had been a broad rally in risk assets and the dollar index had also softened from multi-year highs.
“The recent bout of weakness is caused by strong dollar demand from oil importers with crude oil prices holding steady. Crude oil prices have again surged higher after a brief period of consolidation as Saudi Arabia has not committed to increasing oil output,” she said.
Besides, as the rupee hit the 80 to the dollar mark, importers and corporates with huge overseas loans were rushing to hedge their foreign currency exposure, which was acting as a key headwind for the domestic currency, she added.
“Amid a backdrop of uncertainty and Europe in the grip of an acute energy crisis, markets would be closely eyeing the crucial European Central Bank monetary policy decision, where it is likely that the ECB would deliver a 50 basis points rate hike to tame worsening inflation,” Ms. Sachdeva observed.
“A hawkish stance of the ECB would lead to further pressure on the greenback while aiding the domestic currency. On the contrary, a slightly dovish tone would mean renewed strength in the dollar index that shall further suppress the Indian rupee,” she added.
