In early trading Rupee touched 81.25/ $

Forex traders watch for clues on the RBI's intervention policy following the recent rupee decline

September 23, 2022 10:31 IST | India Infoline News Service
On Friday, the rupee fell to a new low versus the US dollar as local currency sentiment remained negative in the face of a fast gaining dollar. Due to the Federal Reserve's indication of a more prolonged tightening cycle than anticipated, the dollar has increased recently.
In the opening minutes of Friday's trading, the rupee set a new intraday low against the US dollar of 81.25. The price of the native currency was 81.13 at 09:25 IST. On Thursday, the rupee fell 1.1% against the dollar, reaching a record low of 80.87 per dollar.

Dealers said traders were uneasy as they anticipated clues on the Reserve Bank of India's (RBI) future intervention approach due to the central bank's (RBI) lack of large dollar sales despite a sharp slide in the rupee on Wednesday.
The native currency has lost 8.5% of its value against the US dollar thus far in 2022. The US dollar index, which has increased by more than 16% so far in 2022, was last at 111.41 vs 111.16 on Thursday at 3:30 IST.

The yield on the benchmark 10-year bond recently traded 7 basis points higher at 7.38 %, continuing the government bonds' severe losses from Wednesday. The movement of bond prices and yields is the opposite. Bond yields accelerated along with the rise in US Treasury rates.
"10-year UST rates are still rising in response to the Fed's hawkish remarks. BoE, SNB, and Norway all increased interest rates. The USD/CNH exchange rate is still unstable but is only creeping upward, which puts more pressure on the currency. Charts show that DXY can test values of 112.40. "For the USD/INR, 80.40 is now acting as a base, and levels around 81.40 may be probed," said Kunal Sodhani, vice president of Shinhan Bank's global trading center.

The rupee had been outperforming other developing market currencies before Thursday's dramatic decrease because of a restart of foreign equity investment, a drop in crude oil prices, and active market interventions by the RBI.
The rupee has suffered more recently than other emerging market currencies, raising the possibility that the central bank was giving the currency some time to adjust to the new reality of US interest rates remaining higher for longer. The RBI's foreign currency reserves are now at a two-year low of around $550 billion following market interventions since late February.

"The RBI's absence yesterday was felt as the rupee autonomously followed global dynamics to reach its fair value. Amit Pabari, MD of CR Forex Advisors, noted that one of the reasons the RBI was unable to stop the currency's decline was the lack of liquidity in the banking sector, which is now experiencing a shortfall.
In light of rising short-term interest rates, he added, "RBI's involvement in the spot market might make the situation worse for the banking system liquidity." According to CR Forex, the rupee might decline in the near future to 81.80–82.00 against the dollar.

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