Rupee falls to fresh record low ahead of US inflation data; elevated crude prices dampen investors’ sentiment

The Indian rupee weakened further on Friday to hit a fresh all-time low versus the US dollar as domestic equities fell amid risk aversion in markets ahead of the release of US inflation data, which is seen influencing the pace of future rate hikes by the US Federal Reserve. Furthermore, elevated crude oil prices also hurt sentiment for the domestic currency, with market participants fearing a fresh bout of foreign portfolio investment (FPI) outflows, given the unfavourable outlook on India’s inflation and current account account deficit. Rupee opened at 77.81 and was last trading at an all-time low of 77.87 against the greenback. The domestic currency had settled at a record closing low of 77.76 on Thursday.

Rupee consolidating in a narrow range despite volatility in domestic and global equities
Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services, said, “Rupee hit its fresh all time low but in the last few sessions has been very resilient and is consolidating in a narrow range despite volatility in domestic and global equities and strength in the dollar against its major crosses. On the domestic front, RBI has been very actively intervening and curtailing the volatility for the rupee. Global crude oil prices have been rallying thereby putting pressure on inflation and leading to higher trade deficit.”

USDINR (Spot) to trade with a positive bias and is gradually headed towards 78.50
“Dollar is getting support at lower levels ahead of US inflation number that will be released today and FOMC policy statement that is scheduled next week. Expectation is that the Fed could continue to raise rates and maintain its hawkish stance. We expect the USDINR (Spot) to trade with a positive bias and is gradually headed towards 78.50 levels. On the downside 77.20 will continue to act as an important support in the short term,” Somaiya added.

Rupee to depreciate towards the 78.20 mark in the near term
“The Indian rupee has slumped to a new record low of 77.87 mark after a prolonged phase of consolidation as risk sentiments have soured amid concerns about acute price pressures and the re-imposition of some lockdown restrictions in China. The rise in crude prices towards three-month highs owing to supply tightness is further accentuating inflation concerns and inflicting damage on the global economy, already strained by the monetary policy tightening path of the major central banks and the Russia-Ukraine crisis,” said Sugandha Sachdeva, Vice President – Commodity and Currency Research, Religare Broking.

“Besides, the World Bank has slashed its global growth forecast to 2.9% as against its previous estimate of 4.1% in January. These are the key headwinds playing out in the current scenario for the domestic currency and leading to a flight of foreign capital flows while increasing the demand for the safe-haven dollar. Markets are now looking forward to the US CPI data as well as the Fed’s next meeting wherein a 50 bps is already factored in, the third rate hike in a row by the US central bank to rein in decades-high inflation. As of now, we envisage the rupee to depreciate towards the 78.20 mark in the near term and 78.50 from a medium-term perspective,” Sachdeva added.

Importers should keep buying the dips and exporters stay on the sidelines for the moment
“Rupee is likely to stay in a range of 77.60 to 77.90 for the day as markets await US CPI data in the evening. Yesterday ECB indicated raising rates by 25 BPS in July meeting first time in 11 years and withdrew the stimulus and took a stance that all future rate hikes will be data-dependent. They also downgraded their GDP growth. China again going into partial lockdown which is not good news for markets. Oil is still higher and $ getting stronger. Importers should keep buying the dips and exporters stay on the sidelines for the moment,” said Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors.