BackStrong dollar, bear market, recession fear topples Indian rupee to fresh lows, ends at 81.62
Bear market coupled with foreign funds outflow and recession fear due to macroeconomic uncertainties has made the rupee vulnerable to the American currency.
PremiumThe Indian rupee continued to weaken against the US dollar at the interbank forex market on Monday. The rupee clocked a new all-time low of near 81.66 against the dollar due to a strong greenback against a basket of currencies and risk-averse sentiment among investors. Domestic equities extended their losses with Sensex and Nifty 50 tumbling by nearly 2% each today. Bear market coupled with foreign funds outflow and recession fear due to macroeconomic uncertainties has made the rupee vulnerable to the American currency.
At the forex market, the local unit slipped by 0.78% to end at 81.6225 against the dollar. During the day, the rupee clocked an all-time low of 81.6526 against the American currency. Meanwhile, the greenback touched a 22-year high.
Last week, on Friday, the rupee breached the 81 mark against the US currency on recession fears in major economies as the dollar picked up momentum.
Talking about the rupee's current performance, Sriram Iyer, Senior Research Analyst- Commodity & Currency at Reliance Securities said, "The Indian Rupee tumbled against the dollar on Monday as the greenback surged higher after the Sterling tumbled against the dollar after traders rushed for the exits on mounting concern that the new government's economic plan will stretch Britain's finances to the limit. The Rupee ended weaker by 0.8% at 81.6225 per dollar, having touched an all-time low of 81.6526 during the day."
"The currency also tracked stocks and currencies tumbled across Asia on global growth concerns," Iyer added.
Meanwhile, Jateen Trivedi, VP Research Analyst at LKP Securities said, "The panic is created by the dollar index which witnesses strong buying as a strong hedge against interest rate hikes and inflation cycle."
Highlighting other currencies' performance, Iyer said, "In the overseas markets, the dollar index surged higher past $113.50 levels, while the Euro and the Sterling against the greenback this Monday’s afternoon trade. The Japanese Yen remained weak this Monday’s afternoon trade despite intervention from the authorities."
On Indian bond yields, Iyer highlighted that they ended largely unchanged on Monday even as traders expect another aggressive rate hike from the RBI later in the week. The 10-year government bond yield ended at 7.359%, after closing at a two-month high of 7.393% on Friday. The U.S. 2-year, 10-year, and 30-year bond yields remained elevated this Monday afternoon trade in Asia supported by expectations of higher interest rates.
Mitul Shah - Head of Research at Reliance Securities said, "USDINR ended at a fresh record closing low at 81.62, after hitting intraday low of 81.66. The dollar scaled a 22-year high and bonds sold off again as fears grew that a central bank prescription of raising interest rates to tame inflation will drag major economies into recession."
Going forward, Iyer said, "Reuters reported that during the day, the RBI may have sold dollars around the 81.50-81.55 level to keep losses in check. However, we expect the Rupee could continue to weaken further on worries over recession despite RBI’s intervention."
Earlier today, a Reuters report said, Indian rupee sank to a new record low on Monday, following the pound's tumble and fears over more aggressive monetary tightening, with traders saying the Reserve Bank of India likely sold dollars to contain the decline.
In Trivedi's opinion, the Rupee downtrend will continue as long as positive triggers are not witnessed from the inflation forefront. The next trigger for the rupee in the week RBI policy which shall provide Rupee range can be seen between 80.50-81 before the RBI policy bengort.
Sensex closed at 57,145.22 lower by 953.70 points or 1.64%. While Nifty 50 settled at 17,016.30 down by 311.05 points or 1.8%.
Shah added, "The rise in repo rate coupled with the inflation is likely to impact the market in the near term. Going forward, the key events for the markets include, inflation forecast, comments on an external balance sheet, the tone of the policy statement, and path on rate normalization."
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