Mumbai- Dropping for the third straight session, the rupee depreciated by 11 paise to close at a fresh lifetime low of 78.04 against the US dollar on Monday as a global market meltdown and stronger greenback overseas weighed on investor sentiment.
The safe-haven dollar climbed as investors wagered on accelerated rate hikes by the Federal Reserve after US consumer inflation soared to a four-decade high in May.
Weak Asian currencies and persistent foreign capital outflows were the other major factors that dragged the rupee lower, forex traders said.
At the interbank foreign exchange market, the local currency opened at 78.20 and witnessed an intra-day high of 78.02 and a low of 78.29 against the US dollar.
The local unit finally settled at its all-time low of 78.04, down 11 paise over its previous close of 77.93.
“The Indian rupee, taking cues from weaker regional currencies plummeted to a life low. The dollar extended gains on Monday as US treasury yields rose after Friday’s inflation shock raised speculation of a more aggressive rate hike from the Federal Reserve this Wednesday,” said Dilip Parmar, Research Analyst, HDFC Securities.
Parmar further said after Friday’s US inflation data, money markets are pricing in a 175 basis points (bps) hike by September.
“Spot USD/INR is expected to trade higher and a cross above 78.30 will pave way for 78.50 and 78.70 while on the downside 77.70 acts as support,” Parmar noted.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.55 per cent to 104.71.
Brent crude futures, the global oil benchmark, declined 1.58 per cent to USD 120.08 per barrel.
On the domestic equity market front, the BSE Sensex ended 1,456.74 points or 2.68 per cent lower at 52,846.70, while the broader NSE Nifty tanked 427.40 points or 2.64 per cent to 15,774.40.
Continuing their selling spree, foreign institutional investors offloaded shares worth a net Rs 4,164.01 crore on Monday, as per stock exchange data.
“The Indian Rupee depreciated on Monday and posted a record closing low against the dollar as a surge in US inflation raised speculation about more aggressive steps by central banks boosting a selloff in risk assets,” said Sriram Iyer, Senior Research Analyst at Reliance Securities.
The local unit also tracked a broader decline in Asian and emerging market peers.
However, depreciation was capped on central bank intervention, he added.
“Rupee hit its fresh all-time low following broader strength in the dollar. The greenback rose after inflation in the US rose to 8.6 per cent in May as compared to 8.3 per cent in the previous month. Weakness in domestic and global equities also weighed on the currency,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
Somaiya further noted that other major currencies traded with a negative bias in Monday’s session.
“This week focus will be on the Federal Open Market Committee (FOMC) policy statement and expectation is that the Fed could continue to raise rates and maintain its hawkish stance,” Somaiya said, adding, “We expect the USD-INR to trade with sideways and quote in the range of 77.70 and 78.40.”
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