Rupee closes at new low of 83.38 vs $; most Asian currencies weaken

The rupee closed at a new low on Friday due to dollar demand from oil companies amid intervention from the Reserve Bank of India (RBI), which prevented the currency from a sharper fall.

Most Asian currencies weakened on Friday, with South Korean won, Taiwanese dollar, and Thai baht leading the pack.

Rupee closed the day at 83.38 against the dollar as compared to previous close of 83.34 per dollar, which is also a previous closing low.

“The Indian rupee was range-bound for the week with importers buying and the RBI selling dollars, thus keeping it in a range of 83.22-83.38. The inflows from initial public offerings (IPOs) also did not have any effect as they got absorbed in the dollar buying,” said Anil Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP.

“Despite the RBI's previous efforts to protect the 83.30 levels, the rupee closed at a record low due to heightened dollar demand from foreign banks on behalf of their custodian clients,” said Abhishek Goenka, chief executive officer, IFA Global.

Some of the Asian currencies that came under pressure were South Korean won (-0.68 per cent), Taiwan dollar (-0.49 per cent), and Thai Baht (0.45 per cent).

“This slide was attributed to increased demand for the US dollar from importers and a general softness in Asian currencies. The dollar index, unable to sustain its lower position, rebounded, contributing to the rupee’s weakness,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

After deprecating over 10 per cent in 2022 following the war in Europe, which started in February 2022 and interest rates hikes by global central banks, the Indian unit showed remarkable reliance this year, depreciating only 0.8 per cent. In this month, the currency has depreciated 0.1 per cent.

“The USD-INR pair deviates from the global trend. The rupee is expected to underperform during periods of dollar weakness as the RBI would like to recoup reserves and correct rupee overvaluation,” Goenka said.

The Indian central bank has been active in the foreign exchange market to curb volatility. India’s foreign exchange reserve kitty, at 596 billion, covers 10 months’ of imports projected for 2023-24. The country’s foreign reserves swelled around $34 billion in 2023.

“We anticipate a slightly negative trajectory for the rupee, influenced by global market weaknesses and the prospect of a rebound in the US dollar index. However, inflows from IPOs and a weak tone in crude oil prices might offer support to the domestic currency,” Kalantri said.