The Indian rupee has fallen to a new record low against the US dollar, trading at 83.08, as a result of ongoing capital flight abroad and a strong dollar in global markets. On Wednesday, the rupee hit a historic low of 83 against the US dollar after falling by 60 paise. Additionally, higher petroleum prices in global markets and investor aversion to risk hurt the local currency, according to dealers.
The US dollar index had been hanging at 112 for the last three sessions, and PSU lenders may have sold dollars on behalf of the RBI to reduce volatility. This caused the rupee to move in a limited range. But on Wednesday, when US Treasury rates jumped to a 14-year high, the dollar index broke over the 112.55 mark, prompting frantic selling of the rupee, according to brokers.
Major world currencies were also negatively impacted, with the dollar reaching a 32-year high versus the yen and getting close to the historic level of 150. On Wednesday, the British pound fell by 0.6% and the euro fell by 0.8% against the US dollar. After ultimately settling at a record low of 83.00, the rupee suffered a net loss of 60 paise, marking its worst one-day decline since September 22. The rupee lost 10 paise to conclude the previous session on Tuesday at 82.40 versus the dollar.
Due to a rising dollar, the rupee fell by close to 2% this month, or 160 paise, to reach a record low of 83. On October 6, the local unit surpassed the 82-point threshold. The rupee hit new lows at 83.00, according to Jateen Trivedi, VP Research Analyst at LKP Securities, as a result of panic selling amid increasing dollar rates, which saw support around 112 and spiked over 112.55.
“Due to corporate dollar outflows, a lower Chinese yuan, and traders’ position unwinding ahead of close-to-month contract expiry, the Indian rupee lagged other Asian currencies.” The dollar index increased as a result of the poor economic data from Europe and the UK, which also affected the rupee, “Dilip Parmar, a research analyst at HDFC Securities, said.
A new low for the rupee versus the US dollar has been reached at 83.08.
Due to heavy dollar demand from petroleum businesses and the Reserve Bank of India’s (RBI) less forceful intervention, the rupee experienced a steep slide on Wednesday and for the first time crossed the 83 per dollar threshold, according to traders. The dollar’s rise and the rising US bond rates made the rupee even weaker.
When compared to the previous finish of 82.36 per dollar, the local currency fell by 0.8% to conclude at 83.02 per US dollar. Before this, the rupee’s all-time intraday low was 82.72 per dollar and the record closing low was 82.36 per dollar. The Indian rupee has lost 10.5% of its value against the US dollar so far in 2022.
“A few oil and gas public sector undertakings (PSUs) may have spent close to $1 billion on procurement.” According to Kunal Sodhani, vice president of Shinhan Bank, liquidity remained relatively low in the market as the USD/INR traded in a highly constrained band of 82 to 82.40 for a few trading sessions. Dealers claim that on Wednesday, the RBI did not intervene and sell dollars at the 82.40–82.44 range, a range it had safeguarded throughout the previous six trading sessions. The rupee has fluctuated between 82.03 and 82.43 versus the USD since October 11.
The abrupt departure of the RBI caused the currency to depreciate quickly since macroeconomic fundamentals remained poor. Traders were alleged to have experienced a series of technical losses once the rupee crossed the 82.50 to the dollar threshold. This made the fall worse. The rupee had one of the worst performances on Wednesday among developing market currencies.
The rupee immediately breached the 83/$1 threshold after the 82.40/$1 milestone. People would have taken dollar-short positions in the expectation that the level (82.40–82.44) would be defended. Everyone flocked to the store to buy dollars as soon as that level was breached. When the RBI backed off, the rupee made a similar move, breaking above 80 and reaching 82, according to Bhaskar Panda, executive vice-president of international treasury at HDFC Bank. In the short term, Panda expects the rupee to trade between 82.50 and 83.50 to the dollar.
Analysts predict that the RBI will likely act less vehemently through dollar sales given challenges such as a growing current account deficit and aggressive interest rate rises by the US Federal Reserve. Since the start of the war in Ukraine, the central bank’s foreign exchange holdings have decreased by around $100 billion. “The RBI’s actions on the spot market are what will keep the rupee strong. You’ll make significant movements on some days while not on others. Nitin Agarwal, head of trading at ANZ Bank, remarked that today was one of those days when the RBI disappeared.
“The basic forces remain constant.” demand for defense, imports, and oil regularly. CAD is being used. According to him, inflows occur to the degree that there is a rise in dollar demand. Indian stocks have currently had net sales of $23.16 billion from foreign portfolio investors in 2022. The rupee’s decline since late September, according to Anubhuti Sahay, head of economic research at Standard Chartered Bank for South Asia, is a sign that the RBI intends to allow the currency to weaken in line with the fundamentals. The current financial year’s predicted increase in India’s current account deficit from the previous one’s 1.2% to over 3% as domestic inflation remains high.
“It’s very obvious that the RBI actively defended the 80 levels until mid-September or the third week of September, and that the RBI has since allowed the rupee to decline in a controlled way. We believe that this tactic is perfectly acceptable,” she stated. The rupee might be trading at 83 to the dollar by the end of 2022, according to a forecast by Standard Chartered Bank, but Sahay warned that there is a chance it could collapse even more by then.