Rupee weakens despite fall in dollar index as RBI stepped by buying

Despite the dollar index falling below 100, the rupeedepreciated by 10 paise on Friday because the Reserve Bank of India (RBI) stepped in to buy dollars in order to replenish its reserves, dealers said. Moreover, importers bought dollars for oil companies that further weighed on the Indian unit. The dollar index breached the level of 100 after April 13, 2022, which is a 15-month low.
 

The dollar index measures the strength of the US dollar against a basket of six majorcurrencies.The rupee settled at Rs. 82.17

per US dollar on Friday, against Rs. 82.07 per US dollar on Thursday. “Rupee opened at intraday high of Rs. 81.93 per US dollar but was sold off, as the RBI stepped in to buy dollars followed by oil companies who were continuously on the bid side keeping the spot higher,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors.
 

“Asian currencies were all on the gaining side and all factors are positive for rupee except oil which is at $81.36 keeping oil companies on the bid side.” The dollar index slumped because of lowerthan-expected US inflation data, which led investors to anticipate fewer interest rate hikes for the year.

The release of weak producer and consumer inflation readings this week further supported the belief that the Federal Reserve was nearing the peak of its interest rate cycle, suggesting that the potential rate hike in July could be the final one in the current cycle.

In June, US producer prices showed a modest yearon-year increase of 1 per cent, marking the smallest advancement since 2020.

Going ahead, the rupee is projected to maintain a range between Rs. 81.90 and Rs. 82.50 per dollar in the upcoming week on the back of weakness in the dollar index. The dollar index may experience further decline, however, there is a possibility of a rebound as it is currently in an oversold zone, the dealers said.