The rupee weakened on Wednesday, snapping a three-day winning streak, as hawkish comments from US Federal Reserve officials bolstered the dollar to a near 2-year high, and worries over surging domestic inflation pushed stocks to extend losses for a second session.
According to Reuters, the rupee weakened to 75.81 against the dollar. The PTI reported that the rupee opened at 75.50 against the American currency at the interbank foreign exchange market but lost ground and settled at 75.76, down 47 paise from the previous close. On Tuesday, the rupee had climbed 24 paise to close at 75.29 against the US dollar.
“The Rupee has seen a sharp reversal of its weekly gains after the US dollar index rallied to hit fresh swing high of 99.75 after Federal Reserve governor Brainard said, she expects methodical interest rate increases and rapid reductions to the Fed’s balance sheet to bring U.S. monetary policy to a ‘more neutral position’ later this year,” wrote the Currency Desk of Emkay Global Financial Services, in a research note.
“The comments were in line with the point that the Fed is poised to get more aggressive in its upcoming meetings. The markets will be keenly awaiting the FOMC March meeting minutes, which will be released tonight. Meanwhile the European union continues to pile on fresh sanctions on Russia as they sanctioned four key Russian banks yesterday. The EU chief also said that EU must sanction Russian oil and gas soon or later. The rupee will lose more ground and test 75.80 levels until 75.50 holds. A reversal towards 75.20/75.00 will be seen below 75.50,” the note added.
perspective note on Rupee from the Currency Desk of Emkay Global Financial Services.
The dollar index, which measures the greenback against six peers, gained 0.15 per cent to 99.620, its highest level since May 2020.
Those gains came after Fed Governor Lael Brainard, generally seen as a more dovish policymaker, said she expects a combination of interest rate increases and a rapid balance sheet runoff to bring US monetary policy to a “more neutral position” later this year, with further tightening to follow as needed.
According to Dilip Parmar, Research Analyst, HDFC Securities, the rupee snapped its winning streak and was the worst performer among Asian currencies. Fed members spoke about balance-sheet reduction and rate hikes.
“Hawkish tone from US Fed members pushed risk assets lower while dollar and bond yields surged to multi-month high. “Ahead of the RBI monetary policy decision, USD/INR is likely to trade in 75.30 to 76.00 range,” Mr Parmar noted.
Asian and emerging market peers were weaker against the US dollar this Wednesday morning and will weigh on sentiments, Iyer said, adding that investors will await cues from the RBI monetary policy meeting.
While crude markets have witnessed wild gyrations from the Russia-Ukraine war, oil prices have remained above $100 a barrel since Moscow invaded Ukraine on February 24.
As a result, India’s oil companies have continued to raise pump prices on the back of elevated global crude prices, sparking inflation worries.
But what is likely to cap the rupee’s fall is foreign institutional investors remaining net buyers in the capital market. Indeed, the latest stock exchange data showed that FIIs on Tuesday purchased shares worth Rs 374.89 crore.