The rupee is in for a rough ride ahead, with the 80 per dollar rate almost a done deal after a blowout US inflation print.
The next important psychological milestone of 80 per dollar, which is almost a done deal following a blowout US inflation print that would further strengthen the already-rampant dollar, is in store for the rupee.
Robert Carnell, regional head of research at ING for the Asia-Pacific, stated that “Asian FX vulnerable to sell-off after US inflation surprise.”
The fact that inflation rose by higher than anticipated 9.1% from a year earlier, reaching a 40-year high, will strengthen expectations for a larger-than-expected Federal Reserve interest rate hike this month and, in turn, increase the likelihood of a recession.
The rupee’s journey this year has been nothing short of remarkable; from trading at 74 at the beginning of 2022 to close to 80 against the dollar today.
According to Nasdaq data, the currency has breached a new weak level five times this month, making it the 26th time since Russia invaded Ukraine late in February that it has fallen to a new record low level.
That also includes a 20-day fresh all-time low closure, which is unusual.
Given how quickly the currency has fallen recently, the 80 per dollar rate was still a hop, skip, and a leap away only two days ago, but it is now all but certain.
The rupee has already experienced five new lifetime low this month.
When the rupee touched 77 to the dollar for the first time ever in March, just days after Russia invaded Ukraine, it signalled the beginning of the currency’s decline. Since then, it has plunged to new lows, breaking through numerous significant psychological threshold levels nearly every day.
Fears that rising rates will stifle global economic development have played a significant role in this year’s sell-off on the international financial markets. The safe-haven dollar, on the other hand, has reaped the greatest rewards in currency markets.
Nobody anticipated that, not even in their most optimistic estimates, when the Indian rupee was trading at roughly 74 to the dollar at the beginning of 2022.
The picture appears gloomy; keeping in mind the constraints, there is still a significant risk to currency stability, which is crucial when battling rising inflation and commodity prices.
Fears of a global recession brought on by central banks combating inflation should be added to the mix.
“The rupee is expected to trade on a negative note taking cues from the strong US dollar. The dollar strengthened on hawkish Fed and optimistic statements by Fed officials assuaging fears over economic fallout of rate hike,” said Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas.
