Rupee slumps to fresh all-time low of 80

Rupee slumps to fresh all-time low of 80.15 as US dollar touches two-decade peak on Fed’s hawkish stance

The Indian Rupee breached the 80 per Dollar mark to hit a fresh record low on Monday while bond yields rose 6 bps, tracking the fall in global equities on the back of the US Federal Reserve chairman Jerome Powell’s hawkish rhetoric at the Jackson Hole event. The local currency was trading at 80.03 against the US dollar, down 0.25% from its previous close. At the interbank foreign exchange, the rupee opened at 80.07 and touched a record low of 80.13 a dollar. The 10 year bond yield gained 6 basis points to 6.27% from its previous close of 6.21%. Note that bond yield and prices move in opposite directions.

Among Asian peers, South Korean Won declined 1.3%, Thai Baht lost 0.8%, Japanese Yen 0.64%, China Renminbi 0.6%, Taiwan Dollar 0.6%, Malaysian Ringgit 0.5%, Indonesian Rupia 0.43%, and Singapore Dollar 0.34%. In his statement at the Jackson Hole Symposium, the Fed Chairman said the US economy will need tight monetary policy “for some time” before inflation is under control. He added that reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions.

As that pain increases, Powell said, people should not expect the Fed to dial back its monetary policy quickly until the inflation problem is fixed. Powell and other policymakers are signaling that even a recession would not budge them if inflation is not convincingly heading back to the Fed’s target.

USDINR (Spot) to trade positive

“Powell gave no indication on Friday of how high rates might rise before the Fed is finished, only that they will go as high as needed. Dollar rallied sharply after the Fed Chairman comments and this week’s non-farm payrolls data is likely to trigger further volatility for the greenback. We expect the USDINR (Spot) to trade positive and quote in the range of 79.70 and 80.20,” said Gaurang Somaiya , Forex & Bullion Analyst, Motilal Oswal Financial Services.

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Rupee may trade in 79.70-80.50 range over next 1-2 weeks

“USDINR is on a strong wicket, with such a positive USD backdrop. A strong US Dollar Index, high US bond yields with a deeply inverted yield curve and weak equity markets all make it challenging for FPI and carry trade flows in EMs. However, the speed of the up move will be closely regulated by RBI. RBI has twin objectives of not letting the Rupee become a weak outlier and also, they do not want the USDINR to become too volatile. This means they may continue to sell USD as the spot and forwards moves to a fresh all-time high. However, this may not alter the trajectory of the pair and the path of least resistance would remain upward. We expect a range of 79.70 and 80.50 over the next 1-2 weeks,” said. Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities.

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