Rupee falls to record low vs US dollar

The Indian rupee fell to a record low today vs US after the US Federal Reserve hinted at more aggressive rate hikes to tame inflation. The rupee opened at a record low of 80.2850 per U.S. dollar and depreciated further to 80.58 per USD, as compared to 79.9750 in the previous session. Overnight, the after the Federal Reserve unveiled a third straight jumbo interest rate hike, said more were in the pipeline, and warned the battle against inflation was straining the US economy.

The dollar index was up nearly 1% to a new two-decade high of 111.60. The Fed’s new projections showed rates peaking at 4.6% next year, with no cuts until 2024.

“It is apparent from the recent action and commentary of the US Federal Reserve that we are still far away from the end of the rate hike cycle. We reckon that the rupee is expected to remain under pressure despite the improvement in domestic economic prospects. Additionally, for the RBI it will be difficult to intervene and take strict actions to curb the rupee depreciation as the liquidity in the banking system has swung into deficit mode after remaining in a surplus mode for almost 40 months and at the current juncture, the RBI doesn’t want to derail the economic recovery,” said Santosh Meena, Head of Research, Swastika Investmart.

“Technically, the USD-INR pair witnessed a breakout of ascending triangle formation that may lead to further weakness in the rupee towards the 81.5-82 zone. However 81 will be an intermediate and sacrosanct support level for the rupee.”

“The Indian rupee has plunged to a fresh record low amid signs of escalating Russia-Ukraine tensions and a hefty rate hike of 75 bps by the US Fed for the third time in a row, which has led to a vertical rally in the greenback index towards two-decade highs of 111.78 level. The US central bank struck a more hawkish tone than expected at its latest meeting indicating that it will aggressively front load rate hikes to rein in runaway inflation, even at the risk of hurting growth,” said Sugandha Sachdeva, Vice President – Commodity and Currency Research, Religare Broking.

India’s equity markets got $8.5 billion of inflows over the past three months. Domestic equity benchmark index Nifty was down 0.6% but posted smaller losses than most of its peers.

“Slowing portfolio flows in the domestic markets have further accentuated the decline witnessed in the rupee-dollar exchange rate, even as weakening crude oil prices are still capping losses in the domestic currency. Further ahead, a move past the 80.10 mark has opened the doorway for depreciation in the Indian rupee towards the 81 mark in the coming days,” she added. 

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