The Indian rupee recorded yet another record low on Friday, as it touched the 81 mark against US dollar and scaled 81.09 at open, on the back of 10-year US Treasury yields climbing to fresh multi-year highs and dollar demand from importers. This is the first time the local unit has fallen below the 81 mark against the greenback.
According to PTI, the rupee depreciated 44 paise in early trade
weighed down by the strong american currency and risk-off sentiment among investors. Forex traders said escalation of geopolitical risk in Ukraine and rate hikes by the US Fed and Bank of England in a bid to contain inflation sapped risk appetite.
Further, the strength of the American currency in the overseas market, a negative trend in domestic equities, and risk-off moods amid escalation of geopolitical risk in Ukraine weighed on the local unit. At the interbank foreign exchange, the rupee opened at 81.08 against the greenback, then fell further to 81.23, registering a fall of 44 paise over its previous closing.
On Thursday, the local unit had suffered its biggest single session percentage decline since February, due to a very hawkish US Federal Reserve rate outlook, traders said.
In the last hour of trade on Thursday, the local unit had accelerated its decline and closed at the day’s low. The rupee plunged by 83 paise — its biggest single-day loss in nearly seven months — to close at an all-time low of 80.79 against the US dollar.
“Just based on yesterday’s momentum, the pair (USD/INR) will get to 81 in early trades,” a currency spot dealer at a Mumbai-based bank said.
“You can expect more importer activity today, and speculators will once again test the RBI.”
The rupee, after a period of outperformance, was among the biggest losers among Asian peers on Thursday.
The 10-year U.S. Treasury yield overnight climbed above 3.70% and the two-year yield reached a high of 4.16%.
The latest sell-off in the bond market was fuelled by the so-called dot-plot projections from Fed officials that rates may reach 4.4% by the end of this year.
This implies more rate hikes of about 125 basis points over the remaining two meetings in 2022.
U.S. equities declined overnight, with S&P 500 Index falling to its lowest level in over two months.
The U.S. benchmark gauge is down about 21% year-to-date. In contrast, Indian equities were a tad higher for the year.
The fall in rupee premiums to the lowest level in over ten years is expected to aid importers to a small extent, traders said.
The 1-year rupee forward premium implied yield on Thursday dropped to below 2.75 per cent.
(With agency inputs)
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