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Rupee falls to fresh all-time low amid strong dollar, persistent FII selling, risk aversion in global markets

The Indian rupee fell to a new all-time low of 78.15 against the US dollar on Monday. The greenback gained strength amid the toxic mix of rising costs and slower growth.

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Weak global sentiments and weak Asian and European currencies have allowed the rupee to open below 78 after RBI ensured it did not cross 77.70

The Indian rupee fell to a new all-time low of 78.15 against the US dollar on Monday as it breached the 78-mark against the US dollar for the first time. The local currency began the day at 78.14 against the greenback, 30 paise lower from Friday’s close of 77.84. The elevated global crude oil prices, strengthening dollar and a continuous outflow of foreign funds from the local market, have kept the domestic currency under pressure for the last few sessions. Dollar gained strength amid the toxic mix of rising costs and slower growth. Meanwhile, the benchmark 10-year bond yield rose to its highest in more than three years as investor concerns over faster rate increases in the United States resurfaced following US inflation data.

“Weak global sentiments and weak Asian and European currencies have allowed the rupee to open below 78 after RBI ensured it did not cross 77.70. Have to watch RBI as to how it behaves in the next few days. Crude is below 120 which is just a bit of consolation as Chinese demand and recession prospects worry investors,” said Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors.

Jigar Trivedi,- Research Analyst- Commodities & Currencies Fundamental, Anand Rathi Shares & Stock Brokers, said, “Indian Rupee spot touched a new record low of 78.2825 on Monday, after US CPI data came at a new 40 year high of 8.6% in May, adding pressure on the Federal Reserve to intensify monetary tightening. Sharp sell-off in equity markets coupled with surging US treasury yields added to the weakness in Rupee. We might see more weakness ahead of the FOMC meeting on 15th June, where Fed is expected to hike rates by 50 bps and showcase a more aggressive tone. However, runaway depreciation might not happen amid RBI intervention”.

According to Amit Pabari, MD, CR Forex Advisors, after RBI and ECB monetary policies, this week will be watchful with the Big Boss Fed and BOE both expected to raise interest rates. Federal Reserve speech will mark centre importance for the anticipative markets and the further moves in the dollar index. On the domestic front, weaker fundamentals are weighing on the Indian rupee with Brent crude hovering near $120/bl, raising the concerns of the widening trade deficit while the rising US interest rates is leading to concerns of further capital outflows and BOP crisis.

“Its a tough task for the RBI to actively manage the current volatility that is influenced by the risk-sensitive global environment, although it has run the show smoothly by effectively using its accumulated $600bn reserves and allowing the rupee to depreciate steadily. Today’s RBI action will be closely watchful near 78.20-30 levels to understand its comfort levels. Overall, it is historically seen, that whenever the rupee breaks its all-time high, it typically moves by 1 to 1.5 rupee. However, this time as the key level of 77.80 is broken in the USDINR pair, RBI might not allow the pair to move higher sharply and we expect the rupee to trade between 77.80 -78.50 in the short to medium term, “Pabari said.

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