The Indian rupee fell 58 paise on Wednesday, its biggest single-day decline since June 8, breaching the 95-per-dollar mark again as it tracked broader weakness in Asian currencies and a strengthening dollar index despite lower crude oil prices.
Falling for the third consecutive session, the rupee closed at 95.24 against the dollar, its lowest level in three weeks.
The dollar index, which measures the US currency against a basket of six major currencies, rose around 0.3% to 101.45. It has gained nearly 2% over the past two weeks, supported by rising US Treasury yields and growing expectations of a hawkish stance from the Federal Reserve.
Asian currencies broadly declined on Wednesday, with the rupee emerging as the weakest performer among them.
Triggers Behind the Breakout
Dealers said stop-losses were triggered after the rupee breached the 95 level, adding further pressure on the currency.
The rupee has depreciated 5.97% so far this calendar year and is down 9.8% over the past year.
“A broad decline in Asian currencies and a strengthening dollar index contributed to the rupee’s decline today. In addition, stop losses were triggered after the rupee breached the 95 mark, prompting further fall,” said Dilip Parmer, research analyst, HDFC Securities.
Central Bank Intervention
Market participants said the Reserve Bank of India (RBI) intervened through dollar sales, helping limit further losses.
Parmer said the recent move appears to be a technical reversal. “While we expect some volatility, most of it will likely be in price swings with stronger momentum. After today’s movement, the bias has shifted more towards depreciation,” he added.
Anindya Banerjee, head of currency and commodity research at Kotak Securities, said the rupee is unlikely to see a sharp fall from current levels.
“Following the RBI’s clarification on leverage, banks are lining up a lot of FCNR(B) deposits. If oil prices remain low and the rupee stays near current levels, along with support from debt market inflows, the outlook for the currency remains positive. I expect the rupee to trade in the range of 94-96 in the near term,” Banerjee said.
Market playrers expect the policy measures to attract capital inflows of around $60–80 billion, improving sentiment towards the rupee. However, Banerjee cautioned that a further strengthening of the dollar index remains a key risk for the currency.