Rupee sheds 26 paise to dollar as firm US data leads to Fed hike jitters

The domestic unit settled at 82.54 to the dollar on Monday, from 82.28 at previous close. So far in 2022, the Indian currency has shed 9.9% against the greenback

The rupee started the fresh week on a poor note, shedding 26 paise against the dollar, as a stronger-than-expected US data set stoked fears of the Federal Reserve continuing with an aggressive pace of rate hikes, dealers said.

The domestic currency settled at 82.54 to the dollar on Monday, from 82.28 at the previous close. So far in 2022, the Indian currency has depreciated 9.9 per cent against the greenback.

Data released over the weekend showed that US producer prices posted a higher-than-expected rise in November. The data comes ahead of the Federal Open Market Committee’s two-day meeting that begins on December 13.

“Globally, USD has been in demand since Friday after a report suggested that the US Producers Price Index rose beyond expectations. A stronger dollar is weighing on emerging market currencies,” CR Forex Advisors wrote.

The Fed has been aggressively raising interest rates since March 2022 in order to reduce aggregate demand in the US economy and bring down elevated inflation. Traders expect the Fed to announce a fresh 50 bps rate hike this week, taking the total tally of increases in 2022 to 425 basis points.

Higher US interest rates lead to a flight of global capital to the world’s largest economy, exerting pressure on emerging market currencies like the rupee. The US dollar index rose to a high of 105.23 on Monday from its previous close of 104.80. The jump in the dollar index dragged the rupee down to the day’s low of 82.75 per dollar on Monday. The rupee’s all-time low intraday level is 83.29 per dollar.

Foreign portfolio investors may have emerged as net buyers of Indian equities over the past month-and-a-half, but for the calendar year as a whole so far, they have sold a large amount of equities. NSDL data showed that FPIs have net sold $17.3 billion worth of domestic stocks so far in 2022.

Likely sales of dollars by exporters around the level of 82.75 per dollar helped the rupee recoup some losses on Monday, traders said.

“USD/INR  was well bid (firm demand for the dollar) as oil companies continued to bid for the dollar, relentlessly taking rupee lower towards 82.73 before some dollar selling came bringing it back to 82.56,” Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors said.

“Asian and European equities and our indices were all down 0.4%. Expect rupee to be in the range of 82-83 as the market awaits the US CPI and FOMC in the next two days,” he said.