The Indian rupee continued to depreciate against the US dollar on Monday after the solid US jobs report cemented bets of more large Federal Reserve rate hikes. The local unit fell to a record low of 82.66, down from 82.33 in the previous session. Rupee has been sliding against the greenback to hit new record lows in recent sessions on concerns over elevated oil prices, rising Treasury yields, FII outflows, and offshore demand for the US currency. The Reserve Bank of India’s interventions have also not been able to arrest the slide in the rupee, unlike on prior occasions.
Rupee may fall to 83.50 in next few sessions
“The rupee hit fresh record lows on rising oil prices, if the oil again jumps above $100 per barrel, it will surely ring alarms and further stress the deficits and the rupee. Also, weakness was seen as Fed members continued to sound hawkish with two latest speeches by Fed Chair Jerome Powell signaling that the central bank is likely to raise interest rates in 2023 also. This will boost borrowing costs for banks and corporates, which could weigh on economic growth. The RBI has so far intervened only sporadically in the market, to taper volatility, may see further also, we expect the USD-INR pair to trade higher in a range of 81.80 to 83.50 for the next few weeks,” said Ajay Kedia, founder and director at Kedia Advisory.
RBI’s intervention in spot market to control volatility
Bets for more aggressive Fed rate hikes, elevated U.S. bond yields, DXY, and Oil prices are further going to cause pain to the already stretched deficits and further dent the rupee. “It will be interesting to watch out if the RBI allows the USDINR to go beyond 83.00 levels in today’s session. Well, we could see the RBI’s intervention in the spot market to control volatility. Overall, we expect the USDINR pair to trade higher in a range of 82.50 to 83.00, before breaking towards 83.50 levels,” said Amit Pabari, MD, CR Forex Advisors.
RBI to limit intervention amid depleting reserves
“Rupee was the worst performing Asian currency last week, depreciating 1.2% against the dollar to end at 82.33. The double whammy of higher US rates and higher crude prices is back to haunt the rupee. While the RBI was able to defend the rupee successfully through the last round of simultaneous stress on current and capital account by spending its Reserves, this time around things are likely to be different. After having exhausted a significant portion of its Reserves, RBI seems concerned about the burn rate of Reserves and appears to be spending them very judiciously. This has resulted in rupee adjusting and aligning itself with fundamentals and it’s peer group currencies. Rupee is likely to trade a 82.50-82.90 range with weakening bias,” said IFA Global Research Academy in a note.