Rupee hits new low of 83.54 against US dollar amid global worries

RBI likely intervened in the foreign exchange market by selling dollars through state-owned banks, which protected the rupee from further depreciation

The rupee plunged to a fresh low of 83.54 against the US dollar on Tuesday amid continuous foreign fund outflows in the equity market and strengthening of the greenback.

The resurgent dollar weighed on global emerging-market currencies amid heightened tensions in West Asia after Iran launched a drone and missile attack on Israel over the weekend. Investors exhibited a tepid appetite for riskier assets, according to market participants, who also said that the Reserve Bank of India (RBI) intervened in the foreign exchange market and sold dollars to state-owned banks, stemming the rupee’s depreciation. 

The Indian currency touched an intraday low of 83.55 per dollar, breaching the previous record intraday low of 83.48 — a level hit on November 10, 2023. The rupee had settled at a closing low of 83.45 per dollar on Monday.

Indian government bonds, too, weakened and the benchmark 10-year bond yield touched a near three-month peak on worries over the heightened conflict in West Asia and receding bets of an early rate cut by the Federal Reserve. In the US, too, the benchmark bond yield climbed further.

The yield on the benchmark Indian 10-year note ended at 7.187 per cent, its highest since January 25, after closing at 7.178 per cent in the previous session.

As the Indian currency slipped past the psychological level of 83.50 per dollar, traders expected the next resistance at 83.75.

“The RBI was there in the market, and they could have sold around $100 million-$200 million,” said Anindya Banerjee, vice president- currency derivatives & interest rate derivatives, Kotak Securities. “The rupee should trade in the range of 83.40 per dollar to 83.75 per dollar, as there is resistance around 83.75 a dollar.” 

The Indian unit, on Friday, was the fifth most stable currency among its Asian peers. Asian currencies experienced declines against the US dollar in a range of 0.1 per cent to 2 per cent. The Indonesian rupiah fell the most with 2 per cent depreciation versus the dollar.

The rupee has depreciated by 0.16 per cent in the current financial year, while, in the current calendar year, it has weakened by 0.4 per cent against the greenback. In the previous financial year, it witnessed a depreciation of 1.5 per cent over the year.

The Indian unit displayed remarkable stability against the American currency in 2023, showing a marginal depreciation of 0.5 per cent and marking the least volatility in over three decades.

But it has been displaying a strong depreciation bias over the past few trading sessions as the US yields have been rising due to growing expectations of a rate cut by the European Central Bank in June, while the likelihood of a rate cut in the US diminished.

According to CME’s Fedwatch tool, only 24 per cent of traders expect the US Federal Reserve to cut rates in June. The expectation of the earliest rate cut was postponed to December, against the previous expectation of three rate cuts over the year.

“After breaching the level of 83.50 a dollar, the Indian rupee is expected to weaken more towards 83.75 a dollar as risk aversion in world markets, strength of US dollar, higher US yields, FPI buying of the dollar, and brewing anxiety over West Asia will keep the rupee more towards weakness then strength in coming days,” said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP.

The dollar index rose by 0.13 per cent to 106.34 on Tuesday. It measures the strength of the greenback against a basket of six major currencies.