Mumbai : The rupee on Thursday broke the psychologically important barrier of $80 per dollar in the offshore market and onshore over-the-counter market, even as the Indian currency spot market, with a striking distance of touching levels in the market. Came close. participants said.
The Indian currency was trading at $80.21 per dollar in the offshore non-deliverable forward (NDF) market at 6:30 pm local time. The currency on Thursday closed lower at 79.87 in the spot market as the dollar strengthened on anticipation of a percentage hike by the US Federal Reserve this month. The currency had closed at 79.64 on the previous day.
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Market participants now expect the rupee to weaken above 80 against the dollar after the market opens on Friday.
“Given the pressure on the currency, the rupee should touch 80 in the normal course. That said, one cannot be completely sure that the rupee will touch 80 on Friday. If a statement comes, it can open higher. The central bank has also been active in the offshore NDF market. It is possible that RBI may intervene before the Indian market opens.”
The US consumer price index rose to a 41-year high of 9.1% from a year earlier, the sharpest increase since November 1981. Investors are now expecting the Fed to aggressively hike interest rates on July 26-27, the biggest increase since then. The Fed began using overnight interest rates directly to conduct monetary policy in the early 1990s. The US central bank has already raised interest rates by 150 basis points in 2022. One basis point is 0.01%.
The rupee has seen a sharp correction this year, with the currency falling from 74 in early 2022 to around 80 against the dollar.
Foreign institutional investors have dumped $29.5 billion of local shares and sold bonds worth $1.93 billion so far in 2022. “The Fed isn’t just hiking; they’re speeding up hikes every meeting. While there, the US yield curve has turned upside down. An inverted yield curve signals a dramatic growth slowdown and even a recession. This cocktail of aggressive Fed and growth slowdown could hurt flows to emerging markets like India, and push up the USDINR further. We need to keep an eye on the Chinese currency and the Euro. If they fall further, it will Can drive USDINR up to 80.50 also,” said Anindya Banerjee, Vice President, Kotak Securities.
The aggressive policy course by the US Fed to contain rising price pressures is fueling fears of rising prospects of a recession. This means that there is a high risk aversion in the markets and thus a higher demand for the dollar.
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