Rupee At A Fresh Low: Indian rupee fell sharply against US dollar on Monday morning after the US Federal Reserve Chair Jerome Powell signaled that high-interest rates will continue for some time to curb inflation. The rupee fell to a record low of 80.11 vs USD, compared with the previous session’s close of 79.87.
Why is The Indian Rupee Falling?
US Fed Chair Powell on Friday reiterated the central bank’s unconditional commitment to tackle inflation, besides highlighting risks posed by elevated and extended periods of high price growth. In reaction, rate-sensitive short-end and 10-year yields adjusted up, whilst stocks sold off sharply. “While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” Powell said in his speech.
“Powell meets our expectations at Jackson Hole. Chair Powell’s speech at the 2022 Jackson Hole Economic Symposium broadly met our expectations and reinforces our view the Fed will remain hawkish, even as the economy enters recession later this year,” said Nomura Research.
“We expect a recession to start in Q4 2022, but increasingly entrenched inflation will likely result in continued Fed tightening through February before cuts in Q3 2023,” Nomura added.
Last Month, the Indian currency hit a previous all-time low of 80.06. Meanwhile, the US dollar is up over 7 per cent against the rupee so far this year.
Speaking of the future outlook, Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd., said: “USDINR is on a strong wicket, with such a positive USD backdrop. A strong US Dollar Index, high US bond yields with an deeply inverted yield curve and weak equity markets all makes it challenging for FPI and carry trade flows in EMs. However, the speed of the up move will be closely regulated by RBI. RBI has twin objectives of not letting the Rupee become a weak outlier and also, they do not want the USDINR to become too volatile. This means they may continue to sell USD as the spot and forwards moves to a fresh all-time high. However, this may not alter the trajectory of the pair and the path of least resistance would remain upward. We expect a range of 79.70 and 80.50 over the next 1-2 weeks.”
INR-Rupee Technical Levels
Rahul Kalantri, VP Commodities, Mehta Equities Ltd., said: “USDINR 28 September futures contract traded steady last week. On the weekly technical chart the pair is sustaining above its resistance level of 79.55. RSI is fetching above 70 levels and MACD is also showing positive divergence on the weekly technical chart. As per the weekly technical chart, we observed that the pair crossed its resistance level of 79.55 and sustained above these levels. Looking at the technical set-up, the pair consolidated in the range of 79.55-80.05 and is ready for the upside breakout. We expect that the pair could hold to its support level of 79.55 on a closing basis and may test 80.30-80.55 levels.”