On Thursday, the US dollar kept climbing versus other major currencies, pushing the Indian rupee to a record low for a fourth straight session.
At the same time, local bond yields increased. Foreign institutional investors kept selling off their Indian stock holdings, which put more pressure on the rupee.
As the dollar maintained its unrelenting advance, pushed by both expectations for greater policy tightening by the Federal Reserve and safe-haven flows as worries of a recession deepen, the rupee today plummeted to a fresh low of 79.74, moving closer to the 80 per dollar threshold.
The strong dollar and risk aversion in international markets are expected to cause the rupee to weaken today. Red-hot US inflation fuels speculation that the US Fed may need to hike interest rates considerably more than anticipated, maybe by 100 basis points, hurting market confidence.
Additionally, ongoing FII inflows and worries about an impending recession could harm the rupee. According to ICICI Securities, the US$INR (July) is anticipated to trade in the band of 79.50 to 80.00.
Along with the rupee’s devaluation, Indian bonds have also fallen. As rising commodity prices fuel inflation and increase the subsidy cost, the currency is currently trading very close to a record low against the US dollar.
According to Bloomberg, there is a 64% likelihood that the rupee would fall from its current level of roughly 79.6 to 82 per dollar over the course of the next six months.
More than two thirds of India’s oil needs are imported, and the country’s trade and current account deficits have been threatened by high global petroleum prices, which have also been a major driver in the rupee’s decline.
The latest risk to Indian bonds is the possibility of a US recession, which emerged in June when the sinking rupee and rising inflation drove benchmark rates to their highest levels in more than two years.
Following a five-month sale by international funds of the notes through June, a slowdown in the world’s largest economy might make the pressure from outflows worse.
Inflation in the US reached a record four-decade high, according to CPI data, boosting hopes that the Fed will keep up its aggressive monetary tightening programme.
At the upcoming Fed meeting, the market even anticipates a rate increase of 100 basis points. The Indian rupee is still losing ground to the US currency.
On Tuesday, the rupee lost 42 paise to settle at 79.37 to the dollar as concerns over the widening current account deficit, ongoing selling by foreign institutional investors, and a rising dollar index weighed on the currency.
The rupee hit a lifetime low, according to Rahul Kalantri, VP commodities at Mehta Equities. “Higher crude oil price followed by inflationary concerns, global recession talks, and continued foreign institutional investors (FII) selling in the domestic market pushed the rupee to its lifetime low,” he said.
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