Continuing with its fall for the sixth consecutive day, the rupee on Wednesday tumbled nearly 40 paise to a record low of 71.9650 against the US dollar. However, the domestic currency did not sustain at the lower levels and recovered fairly after the sharp fall to finally close the day at 71.7563, up 20 paise against the greenback, Bloomberg data showed.
Analysts said the rupee’s recovery was due to the Reserve Bank of India’s mild intervention in the forex markets. “Rupee has been consistently weak due to various factors such as inflation, strong dollar, rising crude oil prices. While rupee depreciation up to a certain extent is healthy, any significant depreciation over these levels is a sign of worry for the economy. Today’s recovery was mainly due to RBI intervention,” Rahul Sharma, Senior Research Analyst at Equity99, told FE Online.
A Reuters report also quoted two traders saying that the Reserve Bank of India (RBI) likely intervened mildly in the forex markets as the rupee hit a fresh low on Wednesday. The domestic currency had in early morning deals recovered 18 paise to 71.3862 against the greenback from its Tuesday’s closing low of 71.5650 per dollar. However, the morning gains were erased and the rupee fell sharply in afternoon deals, nearing the 72 per dollar mark.
“Rupee’s recovery from record low level can be attributed to RBI intervention and some amount of profit booking,” Bhavik Patel, Senior Technical Analyst, Tradebulls, told FE Online. “Also, Euro was in the oversold region, so technical pullback was seen in Euro which made the dollar retrace and rupee trade strong against the dollar. However, INR is not out of the woods and this is just a temporary respite,” he added.
According to Patel, the next resistance for the currency comes at 72.50 and INR is expected to touch 72.80 per dollar within the first half of September. Till Wednesday, the rupee has depreciated almost 5% in the last one month and is down nearly 13% from its last year’s close.
“Dollar-rupee is being driven by an interplay of local and global factors. Locally, the norms enacted by SEBI on beneficial ownership of FPI funds by NRIs and also fear of tightening of norms for investments flowing non FATP compliant countries is causing distress amongst foreign investors,” said Anindya Banerjee, CMT, CFTe, Currency & Interest Rates Research Desk, Kotak Securities.
“Globally, weakness in EM currencies is being caused by fear of fresh tariffs from US on Chinese imports as well as high oil prices is leading to weakness in Rupee,” Banerjee added. “However, we expect the central bank to step into sell dollars to protect the Rupee. Over the near term, volatility can be high. A range of 71.00 to 72.50 is expected.”