Rupee drops to new low on relentless dollar strength after Fed hike

The rupee depreciated to a new low against the US dollar on Friday as sentiment for the national currency remained weak against a rapidly strengthening greenback. The dollar surged globally over the past two days as the Federal Reserve signaled a longer-than-expected tightening cycle.

The rupiah touched a new intraday low of 81.25 per US dollar during the first minutes of trading on Friday. As of 09:25 IST, the local currency was trading at 81.13. The rupee had plunged 1.1% against the dollar on Thursday, closing at a record high of 80.87 to the dollar.

A lack of significant dollar selling by the Reserve Bank of India (RBI) despite a sharp drop in the rupee on Wednesday also made traders jittery as they waited for clues on the central bank’s future intervention strategy, it said. said the dealers.

So far in 2022, the national currency has depreciated 8.5% against the US dollar. The US dollar index, which has gained more than 16% so far in 2022, was last at 111.41 from 111.16 at 3:30 p.m. IST Thursday.

Government bonds also suffered steep losses from Wednesday, with the yield on the benchmark 10-year bond last trading down 7 basis points at 7.38%. Bond prices and yields move in opposite directions. The tightening of bond yields was accompanied by a rise in US Treasury yields.

“UST 10-year yields continue to rise after hawkish comments from the Fed. The BoE, SNB and Norway are also raising rates. USD/CNH continues to be volatile but only drifts higher, which also adds to the pressure on the Rupee. According to the charts, DXY can test 112.40 levels. For USD/INR, 80.40 now becomes a base while 81.40 levels can be tested,” said Vice President of Shinhan Bank (Global Trading Center), Kunal Sodhani.

Prior to Thursday’s sharp weakness, the rupiah ranked among the best performers among emerging market currencies on the back of a pickup in foreign equity investment, lower crude oil prices and aggressive government intervention. the RBI in the market.

However, since Thursday, the rupiah has suffered more than its emerging market counterparts, suggesting that the central bank was letting the currency adjust to the new reality of US interest rates staying higher for longer. Following market interventions since late February, the RBI’s foreign exchange reserves are currently at a two-year low of around $550 billion.

“The absence of RBI was felt yesterday as the Rupee independently followed global factors to reach its fair value. One of the reasons why RBI could not save the currency’s slide was liquidity insufficient of the banking system which is currently in deficit,” wrote CR Forex Advisors MD Amit Pabari.

“RBI’s intervention in the cash market could make the situation worse for liquidity in the banking system as short-term interest rates rise,” he wrote. CR Forex sees the Rupee weakening to 81.80-82.00 per dollar in the short term.

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