Rupee Hits Lifetime Low, May Slip to 81 on Strong Dollar

Rupee Hits Lifetime Low: The Indian Rupee hit a lifetime low level of 80.43 on Thursday after US Fed’s decision to hike interest rate by 75 basis points yet again. The domestic currency opened at a record low of 80.2850 per US dollar, down from the previous close of 79.97.

The Fed on Wednesday raised rates by 75 bps, in line with expectations. More importantly, it hinted that more hikes were coming and that rates would stay elevated until 2024. The 10-year bond yield rose sharply by 5 bps to 7.289% from its Wednesday’s close of 7.234%. Bond yield and currency prices move in opposite directions.

Following Fed’s hawkish commentary, the dollar index was trading above 111 levels. Due to this reason, rupee was trading lower. Other Asian currencies were also under pressure after the Fed raised rates and provided a more hawkish outlook for its future rate path. Among Asian peers, South Korean won was down 1%, Philippines peso fell 0.73%, China Renminbi dropped 0.6%, Japanese yen 0.57%, Thai Baht 0.51%, Taiwan dollar 0.5%, Malaysian ringgit 0.36%, Singapore dollar 0.28%, China Offshore spot 0.32%. Rupee’s previous record low against the greenback was 80.12 reached late in August.

“Today as expected ruppee is trading at life time level of 80.43, while Eur against dollar is trading at 20-year low levels of 0.98 and GBP against dollar is also trading at 29-year low level at 1.12 levels. “We are expecting that due to the hawkish statement of Fed, major currencies against the US dollar may depreciate. Now, rupee may further depreciate and test 81 to 82 levels very soon.

The Reserve Bank of India (RBI) has been selling dollars in order to moderate the depreciation in rupee. A Reuters report, quoting a government official, said the Indian government is not averse to a weaker rupee in line with global market fundamentals. According to CR Forex Advisors, RBI is unlikely to use its forex reserves to defend currency as it earlier did amid a severe liquidity crunch in the market. “Clearly there is pressure on RBI and will be interesting to see how RBI will be able to defend rupee which is above 80.00 levels. If RBI lets rupee on its free course in line with the global peers, 80.50 to 81.00 shall be shortly seen.

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