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Indian rupee erased the psychological 82-mark against the American currency to reach the best single-day gain on Tuesday since November last year. The local unit has emerged as the top performer among its Asian peers following stop-order triggers and inflows from bond selling.

At the interbank forex market, the rupee closed at 81.7850 against the US dollar -- resulting in the day's gain of 0.70% which is the single-best day upside in two months. Just few minutes before closing, rupee had also reached below 81.70 levels against the dollar. 

On the previous day, the local unit was at 82.36 against the greenback.

Dilip Parmar, Research Analyst, HDFC Securities said, "The Indian rupee becomes the best performer among the Asian currencies following stop order triggers and inflows from bond selling. The local unit witnessed the biggest single-day gains after November 11 and broke the psychological level of 82 as the traders rush to cover the positions."

Also Read: Indian rupee set for a directional breakout against US dollar: Analysts

The Indian currency extended its upside on hopes for a lesser size of rate hikes by the US Fed going forward after US nonfarm payroll data. Also, the greenback which is under pressure against a basket of currencies supported rupee. 

Also Read: Outlook 2023: Here's why rupee will depreciate against dollar in H1

The dollar index  has dropped almost 2% over the last two sessions on expectations that the Fed is likely to pause its rate hiking cycle after two 25 basis points hikes. Fed is expected to take the rate to 4.75-5%. The current implied peak, according to Fed futures, is 4.9%.

Investors will keenly observe US Federal Reserve chair Jerome Powell's upcoming speech later on Tuesday which is expected to give a clear picture of future rate hikes and policy stance.

Also Read: High CAD, Fed's rate hike course likely to keep rupee under pressure in 2023

San Francisco Fed President Mary Daly said it was reasonable for rates to be at 5-5.25% and Atlanta Fed chief Raphael Bostic said he expects rates to rise above 5% and not much higher.

Dollar has continued to weaken amid hopes of a Fed pause more "entrenched", said Srinivas Puni, managing director at QuantArt Market Solutions.

"If the (U.S.) CPI comes in lower than expected, we can expect this (downside) leg to extend and take USD/INR towards 81.50 or below," Puni told Reuters.

Investors will be eyeing upon the US consumer price index data for December which will be released on Thursday. As per the Reuters poll, headline inflation rate is expected to drop to 6.5% from 7.1% in November.

Parmar said, "Spot USDINR now has the support of 81.70, the 50% Fibonacci retracement adjoining the November 14 low of 80.51 and the January 03 high of 82.94. The near-term view remains bearish for the pair and a level below 81.70 will pave way for 81.45 while on the higher side 82.10 acts as resistance."

(With inputs from Reuters)

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