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Why is the Rupee Falling vs US Dollar?

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The rupee declined by 35 paise to a fresh all-time low of 81.88 against a dollar in early trade on Wednesday as the American currency rises further. At the interbank foreign exchange, the domestic unit opened at 81.90 against the dollar, then touched 81.88, registering a fall of 35 paise over its previous close. The rupee had closed at 81.53 to a dollar on Tuesday. The domestic currency has already depreciated around 9 per cent against the greenback so far in the calendar year 2022.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.45 per cent to 114.61.

The US Dollar Index hit a new multi-year high of 114.68 after a White House official ruled out a currency agreement to weaken the greenback. The yield on the US 10-year Treasury touched 4 per cent for the first time since 2010.

The surge in the dollar pushed other currencies to multi-year lows on Wednesday. Sterling was down nearly 1 per cent to $1.0634 and Aussie was at its lowest since May 2020. The kiwi lost about 1 per cent to its lowest since March 2020 while the yuan was at its lowest since 2008.

Will the Indian Rupee Continue Its Fall?

Bhavik Patel Commodity/Currency analyst Tradebulls Securities expects the rupee to depreciate around 82.50-83.00 in the near term as the only advantage the domestic currency has is the weak oil price.

Patel further said, “Indian rupee is trading at fresh all-time low after US Treasury yield hit 4 per cent mark yesterday. Year to date, Indian rupee is down by 9 per cent compared to other currencies like the South African Rand (-12 per cent), Chinese Yuan (-13 per cent), EURO (-17 per cent), GBP (-24 per cent), and Turkish Lira (-32 per cent). RBI had intervened aggressively this time to defend the rupee against a strong dollar and now our forex reserve is at 2 year low of $545 billion, enough to cover nine months of import as compared to 16 months of import in 2021. So going forward, RBI will not intervene aggressively now and so our currency is more vulnerable to depreciation if Dollar continues to rage ahead.

The rupee reached a record low of 81.6525 on Monday. The local unit traded in an 81.30-81.64 range on Tuesday. The Indian rupee also got some jolt yesterday after news of the Indian bond’s inclusion to replace the Russian bond in JPMorgan’s influential emerging market debt index will be pushed to next year due to a number of issues that needs to address.

Megh Mody – Commodities and Currencies Research Analyst, Prabhudas Lilladher Pvt Ltd, said: “Rupee technically has depreciated 3.80 per cent from 79 levels which was recently tested. I think Rupee will take support of 82 and remain in the range of 82-80 levels. This consolidation will benefit the importers if it tests 80 levels over short term.”

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