The Indian rupee has continued its downward spiral on Tuesday. The domestic unit plunged 22 paise to hit fresh all-time low of 79.66 against the US dollar on July 12. The currency has declined over 6 per cent since the starting of this year. Rising dollar and widening trade deficit, decline in the foreign exchange reserves, persistent Foreign Institutional Investors (FII) outflow, and higher global energy prices have kept the currency under pressure.
The US dollar index, which measures the greenback against six rival currencies, climbed to a fresh 20-year high of 108.02 on Monday. The dollar index jumped around 12 per cent this year to a two-decade high. Aggressive interest rate hikes by the United States Federal Reserve to control the mounting inflation, have pushed the dollar index to new highs in decades in last one month.
“We expect the dollar index to remain volatile this week and expect to hold 106.40 levels on a daily closing basis,” said Rahul Kalantri, VP commodities, Mehta Equities Ltd.
India’s widening trade deficit and continuous outflow of foreign investment have also taken a toll on the domestic currency. India’s merchandise trade deficit grew to a record $25.63 billion in June, according to the data released by the ministry of commerce and industry. The net outflow by foreign portfolio investors (FPIs) from equities reached Rs 2.21 lakh crore so far this year, showed data.
Traders this week will keenly follow the inflation data from the United Status and comments from the Federal Reserve officials for future cues. India will also release consumer price index-based inflation data for June on Tuesday.
What’s Next for Rupee
The next technical level for the rupee will be at 79.80 before reaching 80, the analysts said. “We expect the rupee to remain volatile this week and test 79.80-80.05 levels,” said Kalantri.
“The rupee is expected to depreciate today amid strong dollar and pessimistic global market sentiments. Further, the rupee may slip on persistent FII outflows and fears over slowdown in global economy. Also, market awaits India’s inflation numbers that is expected to stay above 7 per cent for third consecutive month,” said ICICI Direct Research in a note.
“Meanwhile, RBI measures to enable free flow of dollars into NRI accounts and set up of mechanism to settle trade transactions in rupees may provide some support to domestic currency,” it added.
“Rupee continued to remain under pressure as the dollar rose sharply against its major crosses after better-than-expected NFP number from the US. Weakness continued to prevail for the rupee despite measures introduced by RBI last week. Inflation number on the domestic front and the US will be released this week and a higher number could cement expectation of further rate hike by the central bank. We expect the USD-INR (spot) to trade with a positive bias and quote in the range of 79.05 and 79.80 in the short term,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services Ltd.