The rupee fell 6 paise against the dollar to close at a record low of Rs 83.57 on Tuesday, weighed down by a strong dollar. The weakness in the local currency was in sync with that of other Asian currencies and comes ahead of the US Federal Reserve’s rate decision this week.
The local currency plunged to as low as 83.5725, near to its previous record low of 83.5750 touched in April, but likely intervention from the Reserve Bank of India (RBI) prevented any further fall in the rupee.
“Stronger than expected US data and political uncertainty after the French president called for snap elections pushed euro-US dollar pair lower and the dollar index higher. Oil demand and rising crude oil prices are further adding to rupee weakness,” Kunal Sodhani, vice-president – treasury, Shinhan Bank told FE. “RBI stepped in to cap the slide in rupee and was seen selling dollar around 83.54 level,” he added.
Sodhani said Indian bonds will be included in JP Morgan Bond Index from this month which will start attracting debt inflows, adding that 83.30 now acts as a support while 83.80 acts as a resistance for rupee.
Analysts say the rupee will continue to remain under pressure and may fall to around 85 before recovering to 83 in the next 2-3 quarters.
While the reappointment of Nirmala Sitharaman as the finance minister “could underpin assurances of fiscal consolidation that the government had previously committed to”, “nonetheless, the rupee remains a tad more vulnerable to pressures, given that the elections unearthed some pushback against widening inequality, which at face value suggests some reallocation and compromises,” Vishnu Varathan, Singapore-based chief Asia ex-Japan economist at Mizuho Bank, told Bloomberg.
The RBI has been regularly selling dollars at near 83.50 to defend the local currency, according to traders. The dollar gained on expectations of further delay in first interest rate cut by the US Federal Reserve on the back of hot non-farm payrolls report last week. Robust US jobs data has decreased the odds of the Fed cutting interest rates later this year.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose up to 0.23% to 105.39. Most Asian currencies depreciated on Tuesday with Taiwanese dollar, which was down 0.47%, leading the losses. South Korean won declined 0.16%, Chinese yuan 0.09%, Indonesian rupiah 0.06% and Singapore dollar fell 0.02%. Brent crude futures, the global oil benchmark, declined 0.05% to $81.59 per barrel.
“We expect rupee to trade with a slight negative bias on strong US dollar and elevated crude oil prices. However, positive global markets and fresh foreign inflows may support rupee at lower levels,” said Anuj Choudhary- research analyst at Sharekhan by BNP Paribas. “Dollar-rupee spot price is expected to trade in a range of Rs 83.30 to Rs 83.80,” he added.
Traders await the Federal Reserve’s policy decision, due on Wednesday, where the central bank is expected to keep rates unchanged.