Rupee depreciated yesterday to 81/$

27 Sep 2022 , 09:49 AM

On Monday, the rupee plunged 64 paise to a new low against the US dollar as the unrelenting rise of the dollar wreaked havoc on financial markets around the world. Against the dollar, the local currency closed the day at 81.63 vs the previous closing of 80.99. For the first time, the rupee finished the day’s trading above the 81 levels. It fell to 81.66 per dollar intraday.

The rupee has fallen 8.9% against the US dollar thus far in 2022. Analysts predict that the RBI may have sold $1 billion to ease tensions, but they also see a slowing of interventional activity.

In addition to raising rates by 75 basis points on September 21 (bringing the total number of rate hikes since March to 300 bps), the US Federal Reserve also hinted at a lengthier cycle of monetary tightening than had previously been anticipated.

The dollar index rose to a new 20-year high of 114.50 early on Monday as the possibility of increased interest rates caused a rush of foreign capital to the US. The index, which has increased by 20% so far in 2022, closed Friday’s domestic trading hours at 112.12.

One of the poorest performing EM currencies, the rupee has lost 2% of its value against the dollar since September 21. Only the South Korean won has lost more against the dollar, outperforming 14 other emerging market currencies. Before September 21, the rupee had done better than many of its rivals, mostly because of the RBI’s frequent market interventions.

“I feel that the current devaluation is more of a catch-up move since the market thought that the RBI had put a line in the sand at about the 80 level. Since the level has been broken as a result of external factors, the market is attempting to determine what level the RBI would attempt to defend next, according to Nitin Agarwal, head of trading at ANZ Bank.

“The market believes that the RBI would resume using currency management to control volatility, as it did between the levels of 77 and 79. The devaluation is taking place because traders are seeing a fair playing field where they can trade both ways now that the RBI isn’t being seen defending a level with such vigour, he claimed.

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