BackNew historic low in Indian rupee. Euro near par against US dollar
Rupee dollar exchange rate today: Apart from a broad rally in US dollar, India's ballooning trade deficit is adding further pressure on rupee, says analysts
PremiumThe rupee hit a fresh historical low of 79.66 against the US dollar today in the backdrop of a broad rally in US dollar. The dollar index, which tracks the currency against a basket of six peers rose to 108.3, the highest since October 2002. The weakness in Euro is a big part of the dollar index's push higher, with the safe-haven appeal of the US currency also attracting investors amid growth worries elsewhere.
The rupee declined 15 paise to close at a new lifetime low of 79.60 as domestic equity benchmark Sensex fell about 500 points.
The euro hovered close to a 20-year low near parity to the dollar amid concerns that an energy crisis could tip Europe into recession.
Widening trade deficit, decline in the foreign exchange reserves and higher global energy prices are also pushing the rupee lower, said Rahul Kalantri, VP Commodities, Mehta Equities Ltd. “We expect the rupee to remain volatile this week and test 79.80-80.05 levels."
Currency traders this week will be focusing on US inflation data and comments from Federal Reserve Officials as they look for clues for the outcome of the Fed's upcoming policy meeting. A high inflation reading would add pressure for the Fed to step up its already aggressive pace of interest rate increases.
Widening trade deficit has put pressure on the value of the Indian currency. As per data released by the Ministry of Commerce and Industry recently, India's trade deficit widened to $25.63 billion in June. For the first quarter of the current financial year, the trade deficit has widened to $70.25 billion due to high imports.
However, growth fears were also weighing on oil. Brent crude fell to $106.04 per barrel. Though FII selling of Indian stocks has eased a bit in recent days, they continue to be net sellers. On Monday, they sold Indian equities worth ₹170 crore on a net basis
The Reserve Bank of India or RBI on Monday asked banks to put in place additional arrangements for export and import transactions in Indian rupees in view of increasing interest of the global trading community in the domestic currency. Banks will however require prior approval from the Foreign Exchange Department of the Reserve Bank of India (RBI), the central bank said in a circular.
“It's a good move . This would make the rupee more tradable globally in offshore centers. I think NDF volumes will go up further. It's a step towards making rupee an international traded currency. Acceptance of the rupee will go up. It will also undermine the use of dollar in the longer term. These can be directly traded without involvement of dollar. Making it more tradable, acceptable. Overseas buyers can open Vostro account with an Indian bank and they can make payments in INR to an Indian exporters. The FX risk gets transferred to the overseas buyer as the rupee amount is fixed (since invoiced in INR)." (With Agency Inputs)
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