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Rupee Slides Past 78 per US Dollar for First Time, Hits New All-time Low; Why is it Falling?


The Indian rupee plunged to an all-time low on Monday as it had breached 78-mark against US dollar for the first time. The local currency began the trading 30 paise lower at 78.14 per US dollar on Monday against the close of 77.84 on Friday. A strengthening dollar and US treasury yields, elevated global crude oil prices and a sharp sell-off in equity markets, have kept the domestic currency under pressure. The rupee lost 21 paise against the greenback last week. On the other hand, India’s benchmark 10-year bond yield rose to its highest level in more than three years on Monday. The benchmark 10-year bond yield was trading at 7.60 per cent on June 13, highest since February 28,2019.

Analysts pointed out multiple factors behind rupee falling to a lifetime low. “Some of the reasons behind this weakening includes persistent FII selling from past few months, rising bond yields, increasing oil prices and inflationary pressures for coming quarters,” said Mohit Nigam, head — PMS, Hem Securities.

Rupee Breaches 78 Per US Dollar: Why is Rupee Falling?

1) US consumer price index jumped a whopping 8.6 per cent in May. It was the biggest surge in US inflation date since December 1981. The soaring inflation numbers pushed the US 10-year yield. The benchmark US 10-year yield touched 3.2 per cent on Monday, having gained nearly 12 basis points on Friday after US inflation beat expectations.

2) The US dollar index continued to surge higher on Monday on the back hot inflation data and strong US 10-year-yield. The dollar index climbed to a near four-week high last week. It crossed 104-mark again and closed at 104.235 with an increase of 0.99 per cent on Friday. The USD-INR 28 June futures contract also settled on a positive note at 77.97 with a gain of 0.13 per cent. The rising dollar index and benchmark US 10-year yield dragged the local currency down on Monday.

3) After decade-high inflation numbers, experts believe that the US Federal Reserve will opt for a more aggressive method to cool surging price pressures. US central bank may go for a more-than-promised interest rate hike in the coming months. Investors will keenly follow the meeting of US Federal Open Market Committee scheduled on June 15 for forward guidance. A sharper rate hike will impact the local currency and bullion in future.

4) “On the domestic front, persistent FII selling continues to dampen sentiment. FIIs have been net sellers for the eighth consecutive month, net offloading more than Rs 3.45 lakh crore since October 2021,” said  Prashanth Tapse, vice president (Research), Mehta Equities Ltd.

5)”Today’s range for the USD INR pair is 77.80-78.30. Investors will remain focussed on retail inflation number. Indian bond yields are likely to open higher tracking spike in US Treasury rates, while major focus will remain on local retail inflation data. The benchmark 6.54 per cent bond is likely to trade in a 7.50 per cent -7.56 per cent band on Monday,” said Sriram Iyer, senior research analyst at Reliance Securities.

6) “We might see more weakness ahead of the FOMC meeting on June 15, where Fed is expected to hike rates by 50 bps and showcase a more aggressive tone. However, runaway depreciation might not happen amid RBI intervention,” said Jigar Trivedi – research analyst- commodities & currencies fundamental, Anand Rathi Shares & Stock Brokers.

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