The Indian rupee depreciated to fresh record low on Monday amid risk aversion in equity markets, strong US dollar. Investors remain cautious ahead of RBI MPC meeting scheduled later this week. The domestic unit opened at a new record of 81.52 per dollar, down from Friday’s close of 80.99. According to analysts, rupee will tumble as risk-off sentiment takes the dollar index to 113.70 and sterling to 1.0557 against the dollar. Finance Minister Nirmala Sitharaman on Saturday said that rupee ‘held up very well’ against the US dollar in comparison to other currencies. “If any one currency that did not get into the fluctuation of volatility as much as other currencies, it is the Indian Rupee. We have held up very well against the US dollar,” Sitharaman said.
Rupee weakens on sharp rally in dollar index; Buy on dips
“The weakening continued in the Indian Rupee as the US dollar continued to advance. Indian rupee spot might weaken to 81.75 amid sharp rally in the dollar index and a broad sell-off in risk assets. Cooling FII inflows and rising treasury yields in the US also weigh down on the domestic currency. Buy on dips strategy recommended for rupee. Today, the greenback surged above 114 levels for the 1st time since May 2002, pushed by a sharp sell-off in Pound. Safe haven buying amid a looming recession, hawkish Fed and broad risk-off sentiments also aides the global reserve currency,” said Jigar Trivedi, Senior Analyst – Currency & Commodity, Reliance Securities.
Rupee may fall to 82.50 soon
After hitting a low of 81.22 in the previous session, rupee was seen recovering back to 80.77, probably RBI hammered a few yards of USD. But still, it was seen closing at 80.98 as importers rushed to cover USD. “Amid a liquidity deficit of more than 21,000 crores in the banking system, RBI will have lesser room to step in and curb rates and volatility. Despite the deficit, RBI might have used its reserves as FX storage fell by another $5.22 billion to $545.65 billion. The upcoming RBI’s monetary policy, which is due on the 30th Sep will be important as the announcement on the repo rate hike, cut in CRR, and changes in stance will be watchful,” said Amit Pabari, MD, CR Forex Advisors.
“Nonetheless, currency market players want an early dose of injection to calm down the shaky nerves. However, further strength in the USD globally could not keep the Rupee trading at an exceptionally fine. Overall, we expect the USDINR pair to remain volatile with downside support at 80.50 and strong bullish momentum could not rule out 82.50 levels on the upside,” Pabari added.
INR to range between 79-83 for rest of FY23 on the back of USD strength
“The INR was trading in a range of 79-80 against the USD prior to the September FOMC meeting. After the FOMC meeting, a distinctly more hawkish Fed implied a strengthening dollar. The INR range also had to shift higher which has been supported by RBI interventions. We expect the INR to range between 79-83 for the rest of FY23 on the back of USD strength, risks for CAD remaining wider than usual and limited room for lesser FX interventions and let the INR depreciate gradually to address external imbalances. Some of the favourable factors could be lower crude and other commodity prices and FPI debt flows in case of an announcement of bond index inclusion,” said Suvodeep Rakshit, Senior economist at Kotak Institutional Equities.