The Indian rupee hit its lowest level against a strengthening U.S. dollar after Jerome Powell’s hawkish remarks at Jackson Hole.
The indian rupee fell 26 paise to an all-time low of 80.13 against the dollar on Monday, depreciating 0.32% from it’s close of 79.87 on Friday.
The rupee has tested a new life-time low on Monday, which is in line with the weakness in other Asian currencies witnessed on the back of hawkish commentary by the Fed, leading to the dollar testing 20-year highs and a global correction in equity markets, Ritesh Bhansali, vice president at Mecklai Financial Services, said. To make matters worse, crude oil is also hovering back at $100, he said.
On Friday, at an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, at Jackson Hole, Powell had emphasised that interest rates in the U.S. are headed higher and will stay there “for some time”.
A strong Dollar Index, high U.S. bond yields with an deeply inverted yield curve and weak equity markets—all make it challenging for FPI and carry trade flows in emerging markets, said Anindya Banerjee, vice president for currency derivatives and interest rate derivatives at Kotak Securities. However, the speed of the upmove will be closely regulated by the RBI.
The RBI has twin objectives of not letting the rupee become a weak outlier and also, they do not want the dollar-rupee pair to become too volatile. This means they may continue to sell dollar in the spot and forwards move to a fresh all-time high, he said.
However, this may not alter the trajectory of the pair and the path of least resistance would remain upward, he said. “We expect a range of 79.70 and 80.50 over the next 1-2 weeks”.
Bhansali said, “Although, the RBI is expected to intervene to slow the pace of rupee depreciation, the rupee is still expected to weaken towards 80.60 levels in the near term.”
The next important events are PMI and NFPR of the U.S., which will give an indication as to how the economy and labour markets are behaving, Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors, said. He expects the rupee to range between 79.80 and 80.30, with risk to the downside.
