The rupee weakened to a new low against the US dollar on Monday, as the dollar's strength continued unabated amid indications of a longer tightening cycle by the Federal Reserve, dealers said.
Importers made a beeline to purchase the US dollar, amplifying the weakness in the rupee. The rupee, which touched a new intraday low of 81.56 per dollar, was trading at 81.50 per dollar at 10.10 am IST. It had settled at 80.99 per US dollar on Friday. The previous intraday low for the rupee was 81.26 per dollar.
The US dollar index surged to a fresh 20-year high of 114.50 early on Monday, as a combination of a hawkish Federal Reserve and risk aversion caused by the war in Ukraine drove global investors to the greenback. The dollar index was at 112.12 at 3:30 pm on Friday.
The Federal Reserve last week raised rates by 75 basis points—that took the total tally of rate hikes in 2022 to 300 bps—and signalled that its tightening cycle could be a longer one than was previously expected.
“Rupee made a weaker start to the last week of the quarter at 81.54 levels as against the previous close of 80.99 levels after having a dismal week. The local unit made a blitzkrieg move in the last few sessions which marked rupee’s all-time lows,” Ritesh Bhansali, vice-president at Mecklai Financial Services said.
“Dollar index made a herculean leap to hover around the levels of 114.057 levels. Dollar strength was fueled by the anticipation of global central banks prescribing for continued interest rate hikes,” he said.
A sharp decline in domestic equities also took a toll on the rupee, dealers said. The BSE Sensex and the NSE Nifty were trading 1.5 per cent and 1.7 per cent lower, respectively, at 10:10 am.
Dealers said that the Reserve Bank of India had not yet significantly intervened in the foreign exchange market through dollar sales. The central bank is expected to do so and prevent the local unit from weakening much further than the 81.50 per dollar mark.
The RBI has, since late February, significantly drawn down upon its foreign exchange reserves in order to shield the rupee from excessive volatility. With the reserves currently at their lowest level in almost two years, dealers expect the central bank to dial down its interventions in the currency market.
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“For USD/INR, 80.90 acts as a support while 81.65 a resistance,” said Shinhan Bank’s vice-president (Global Trading Centre) Kunal Sodhani.