Rupee hits new low, inches towards 82 per dollar on hawkish US Fed

The rupee weakened sharply against the US dollar to hit a fresh low as comments by members of the US Federal Reserve strengthened the anticipation of the American central bank continuing to hike rates at a rapid pace.

The expectation of a longer US monetary tightening cycle pushed the US dollar index up to fresh 20-year highs as global funds made their way to the world’s largest economy.

The rupee weakened to a new low of 81.94 per US dollar in opening trades on Wednesday. The domestic currency, which had settled at 81.58 per dollar on Tuesday, has lost 2.4 per cent versus the dollar since the Fed announced a 75-bps rate hike on September 21. So far in 2022, the rupee has depreciated around 9.2 per cent against the greenback.

At 10:20 am IST, the rupee was trading at 81.85 per dollar.

On Tuesday, St Louise Fed President James Bullard said that the US had a serious inflation problem and that the credibility of the US inflation targeting regime may be at risk. The Fed has already hiked interest rates by 300 basis points since March 2022 to tackle 40-year high inflation.

“Dollar index resurrected to the levels of 114.56 gaining leverage over major rival currencies. US treasury yields are seen to incline towards the 4 per cent levels as traders anguished over the prospect of Fed resorting to higher interest rates,” Ritesh Bhansali, vice-president at Mecklai Financial Services said.

“Fed officials have also been very hawkish in their commentary yesterday. We expect the rupee to be under pressure in the near-term and test 82.50 levels. Any steps by RBI to reduce the pressure on the rupee will be keenly awaited from here on,” he said.

Dealers said that while the Reserve Bank of India was selling dollars around the 81.90 mark, the central bank was not intervening with a great deal of aggression.

“Surely, RBI will have to closely monitor the situation. If not today or tomorrow, then the expectation of direct or indirect intervention will rise on the Policy day- that is on 30th September,” CR Forex Advisors wrote. The firm sees the rupee at 82.50-83.00 per dollar over the near term.

With the RBI having heavily sold dollars over the last few months to protect the rupee from excessive volatility, the central bank’s foreign exchange reserves are currently at a near two-year low.