Rupee Falls to Record Low of 81.09 in Early Trade; Know Why

The Indian rupee recorded yet another record low, as it touched the 81 mark against US dollar and scaled 81.09 in early trade, on the back of 10-year US Treasury yields climbing to fresh multi-year highs and dollar demand from importers.

On Thursday, the local unit had suffered its biggest single session percentage decline since February, due to a very hawkish US Federal Reserve rate outlook, traders said.

In the last hour of trade on Thursday, the local unit had accelerated its decline and closed at the day’s low.

“Just based on yesterday’s momentum, the pair (USD/INR) will get to 81 in early trades,” a currency spot dealer at a Mumbai-based bank said.

“You can expect more importer activity today, and speculators will once again test the RBI.”

The rupee, after a period of outperformance, was among the biggest losers among Asian peers on Thursday.

The 10-year U.S. Treasury yield overnight climbed above 3.70% and the two-year yield reached a high of 4.16%.

The latest sell-off in the bond market was fuelled by the so-called dot-plot projections from Fed officials that rates may reach 4.4% by the end of this year.

This implies more rate hikes of about 125 basis points over the remaining two meetings in 2022.

U.S. equities declined overnight, with S&P 500 Index falling to its lowest level in over two months.

The U.S. benchmark gauge is down about 21% year-to-date. In contrast, Indian equities were a tad higher for the year.

The fall in rupee premiums to the lowest level in over ten years is expected to aid importers to a small extent, traders said.

The 1-year rupee forward premium implied yield on Thursday dropped to below 2.75 per cent.

(With Reuters inputs)

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