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Rupee breaches 80/$1 mark as FPI outflow, global recession fear weigh

Informist, Tuesday, Jul 19, 2022

 

By Richard Fargose

 

MUMBAI – After narrowly avoiding crossing the 80/$1 mark in the past three sessions, the rupee today finally breached the psychologically-crucial level against the dollar as Brent crude oil prices surged 5% on Monday.

 

The rupee opened at an all-time low of 80.0050 a dollar today and fell to as much as 80.0575 a dollar at 0910 IST.

 

Elevated crude oil prices continue to weigh on the rupee as India is the third-largest oil importer in the world. A rise in prices of the commodity weighs heavily on the Indian rupee.

 

Brent crude oil prices surged above $105 per barrel on Monday as supply remained tight with US President Joe Biden’s Saudi Arabia trip failing to yield any pledge from the top Organization of the Petroleum Exporting Countries producers to boost oil supply.

 

Although oil prices have eased from their peaks in March, they are still almost 25% higher than levels at the beginning of 2022.

 

Data released last week showed India’s merchandise trade deficit widened to a record high of $26.18 bln in June on account of high oil imports. Oil imports almost doubled to $21.30 bln.

 

Globally, investors have been increasingly concerned that aggressive rate hikes by the US Federal Reserve to curb inflation may push the economy into a recession.

 

“USDINR (dollar/rupee) is likely to reach 81 with dollar strength persisting, supported by Fed rate hikes and global risk-off sentiments,” said Gaura Sen Gupta, chief India economist, IDFC First Bank.

 

The US dollar index has eased slightly from its 20-year high but it remains firm globally amid growing fears over recession in Europe and the US.

 

Last week, the euro fell to parity level with the US dollar for the first time in nearly two decades on recession concerns driven by a looming energy crisis in Europe.

 

At 1009 IST, the dollar index, which measures the strength of the US currency against a basket of six major currencies, was at 107.49 compared with 107.37 on Monday.

 

So far in 2022, overseas investors have drawn out nearly $31.14 bln from Indian capital markets, while the rupee has depreciated over 7.1% against the dollar.

 

Foreign investors have pulled out funds from emerging markets as major global central banks tighten their monetary policies, and liquidity in the global financial system ebbs. Geopolitical tensions in Europe, rising bond yields in advanced economies, and fears of global recession have exacerbated the outflows.

 

The worsening COVID-19 situation in China and the looming energy crisis in Europe have also dented risk sentiment globally.

 

After hitting an all-time low, the rupee recovered some losses today as the Reserve Bank of India is likely to have sold dollars through some state-owned banks to curb the sharp fall in the Indian currency.

 

“RBI objective is not to change the broad direction of rupee but keep the move orderly,” said a senior official with a brokerage firm. “We have seen RBI defending the big figure levels around 77, 78 and 79 as well in recent past. 80 will be just another level before the market adjusts to the new reality.”

 

The rupee has moved from 77/$1 to 80/$1 mark in a span of just two months, its sharpest move since 2018.

 

In the current spell of depreciation in the rupee, the rupee has breached big figures four times in 2022, the most since 2018–when it slumped big figures nine times from 65/$1 to 74/$1 due to global risk aversion amid the US-China trade war.

 

Market participants said that as the psychologically-crucial rupee level of 80 a dollar got breached today, there is still risk to the currency due to global economic headwinds. Near-term support for the Indian currency is seen around 80.50 a dollar and the next at 81.00 a dollar.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Shirsha Thakur

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

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Source: Cogencis

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