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Tuesday, September 27, 2022

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Rupee Weakens To 80 Against The U.S. Dollar

The rupee has opened weaker due to higher crude oil prices overnight on the back of fears that Russia might continue to halt gas supply to Europe, Ritesh Bhansali, vice-president at Mecklai Financial Services, said. Although, the dollar index has corrected from 109.2 to 107.50 levels, it is unable to lend to any relief and the rupee is expected to test 80.50 levels soon, he said.

The rupee after being a major underperformer yesterday, due to FPI outflows and demand from oilers, begun the day above 80 on spot, Anindya Banerjee, vice-president for currency derivatives and interest rate derivatives at Kotak Securities, said. But, the RBI may be quite active today, he said. However, in spite of the RBI intervention, the path of least resistance remains upward, drive by outflows and reverse carry trade. “We could see a range of 79.70 and 80.30 on spot,” Banerjee said.

Also, the U.S. Fed is not just hiking, they are increasing the pace of hikes in every meeting. At the same time, the U.S. yield curve has become inverted. An inverted yield curve hints at dramatic growth slowdown and even recession, he said. “This cocktail of aggressive Fed and growth slowdown is what can hurt flows towards emerging markets, like India, and cause dollar-rupee to weaken further.”

According to Sugandha Sachdeva, vice president – commodity and currency research at Religare Broking Ltd., considering the macroeconomic backdrop, the “Indian rupee has its eyes set on the 81 to the dollar mark in the near term”.

Back home, India’s widening trade and current account deficit is weighing on the local unit.

India’s trade deficit scaled a fresh high in June 2022 at $26.18 billion with growth in imports outpacing exports growth.

“The increase in imports has been driven by the non-oil and non-gold component, pushing the trade deficit in this component to a record high of $10.6 billion,” said Rajani Sinha, chief economist at CAREdge.

According to Aditi Nayar, chief economist at ICRA, while the recent declines in commodity prices may ease the country’s import bill, the current account deficit for the year is still seen at above $100 billion or near 3% of GDP.

Alongside, portfolio money continues to flow out of equity and debt markets. Foreigners have sold a net of Rs 1.19 lakh crore so far this fiscal, according to data available on the National Securities Depository Ltd.

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