 "Rupee settles at record closing low amidst escalating tensions in West Asia")
The rupee settled at record closing low of Rs 83.45 per dollar on Monday amid escalating tensions in the Middle East, which put pressure on Asian currencies.
The local currency had hit the same level on April 4. It had hit the intra-day low of Rs 83.48 a dollar on November 10, 2023.
The rupee moved in a narrow range throughout the day as the dollar index fell to 105.90 from 105.96 at the beginning of the day. The dollar index measures the strength of the greenback against a basket of six major currencies.
“Amidst global turmoil, the Indian rupee displayed resilience, trading in a narrow range between 83.42 and 83.46, defying expectations of volatility, while the US dollar held steady, and crude oil weakness offset gains, as market sentiment was weighed down by geopolitical tensions from the Iran-Israel conflict,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.
Rupee on Monday performed better than the majority of the Asian currencies. While several Asian currencies experienced declines against the US dollar in a range of 0.2 per cent to 0.4 per cent, the rupee remained comparatively stable with marginal depreciation of 4 paise.
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In the current calendar year, the Indian unit was the third most stable currency after Bangladesh Taka and Hong Kong Dollar. Rupee depreciated by 0.3 per cent in the currency calendar year so far, whereas Bangladesh Taka and Hong Kong Dollar depreciated by 0.1 per cent, and 0.2 per cent respectively.
The Reserve Bank of India likely intervened in the foreign exchange market through dollar sales further limited volatility.
“The RBI was in the market today (Monday). Given that the volumes have dried up, the level of intervention was not large. They could have sold around $500 million,” said Anindya Banerjee, VP - Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd.
The rupee has been showing depreciation bias for the past few trading sessions as the US yields have been rising due to growing expectations of a rate cut by the European Central Bank in June, while the likelihood of a rate cut in the US diminished.
According to CME’s Fedwatch tool, only 25 per cent traders expect the US Federal Reserve to cut rates in June. Market now sees only about two rate cuts this year, against the earlier expectation of three rate cuts.
“US 10-year (yield) continues to move up as US rate cuts continue to remain at a distance. European currencies were up slightly after a huge fall last week due to rate cuts, odds coming down and tensions between Iran and Israel escalating,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.
On Friday, the local currency depreciated by 23 paisa post higher than expected US CPI for March which came in at 3.5 per cent, against the market expectation of 3.4 per cent. It settled at Rs 83.42 per dollar on Friday.