Rupee hits fresh record low of 77.69 on strong dollar, recession fears, risk aversion in global markets

The Indian rupee weakened sharply against the US dollar on Tuesday, hitting a fresh all-time intraday low of 77.69 as weak economic data from China stoked fears of a global recession, eroding appetite for riskier emerging market currencies, according to forex analysts. Risk aversion in global markets, persistent selling by Foreign institutional investors (FIIs) also weighed on the domestic currency. Rupee was last trading at 77.67 against the greenback, weaker than the previous all-time intraday low of 77.62, hit on 12 May. In the previous session on Friday, Rupee recovered to end at 77.31 as the RBI intervened in the open market to stem losses. It had previously breached 77 level against the dollar earlier in March for the first time ever.

Meanwhile, the US dollar has edged from a two-decade high and was trading a touch softer across the board in early Asia trade.The dollar index, which gauges the strength of the US Dollar against a basket of six currencies, was trading 0.01% lower at 104.19.

On the domestic equity market front, the BSE Sensex was trading over 700 points or 0.5% higher at 53,688, while the broader NSE Nifty 50 advanced around 220 points or 1.3% to 16,068. Global oil benchmark Brent crude futures slipped 0.25% to $113.95 per barrel. Foreign institutional investors remained net sellers in the capital market on Tuesday as they offloaded shares worth Rs 1,788.93 crore, according to stock exchange data. Traders are watching for central bank intervention if the currency racks up sharper losses during the session.

Risk-off mode continues to dominate markets, major recession fears ignited

Amit Pabari, MD, CR Forex Advisors said, “The risk-off mode continues to dominate the markets, as the major recession fears were ignited after the Chinese retail data for April showed a contraction of 11%, the biggest fall since March 2020 due to the strict Covid 19 lockdown. Equity markets could come under pressure again while the Chinese Yuan depreciated affecting sentiments related to the emerging market currencies. Dollar index firms up above 104.00 levels as markets pause and rethink whether Fed interest rate hikes while further driving 20-year high dollar rally. Markets will closely watch for US retail sales data release and Fed Chair Powell’s Speech for the short-term momentum and volatility in the US dollar.”

Higher oil prices, FII’s outflows weighing on Rupee

“Meanwhile, the crude oil prices trade higher near $115/barrel to the volatile sessions amid China’s covid lockdown and the EU’s retaliation on Russia’s oil ban. Tracking all the sentiments and higher oil prices, today, the USDINR pair is likely to trade in the range of 77.40 -78.00. Domestically, at a time when global risk-off sentiments, higher oil prices and FII’s outflows are weighing on the Indian rupee, RBI is supporting the currency by intervening across markets as the forex reserves decline for yet another week by $1.77 bn to $595.95 bn. Its stance on inflation and interest rates still lacks clarity after losing its credibility, but it has made it very clear to prevent the one-go slide in the Indian Rupee from the start. Overall, we expect that RBI will allow a steady slip in the currency and we expect the pair to trade in the wide range of 76.50-78.50 in the short to medium term,” Amit Pabari added.

Investors keeping an eye on US retail sales, Fed Chairman’s speech

Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services, said, “Rupee remained under pressure and fell to fresh all-time lows as the broader strength in the dollar continued. Hawkish Fed outlook by the Fed is keeping the dollar supported at lower levels. Market participants remained cautious ahead of the important inflation number that was released this week. On the domestic front, inflation and industrial production numbers were released. Data showed inflation in India rose to 7.79% as compared to estimates of 7.3%. Food inflation, which is driving the rise in retail inflation, rose by 8.38%, the highest so far in this fiscal.”

“Industrial production growth remained subdued at 1.9% in March compared to a year ago. On the other hand, the dollar gained strength after inflation in the US came in at 8.3%, higher than the 8.1% estimate but below 8.5% the prior month. Today, from the US, market participants will be keeping an eye on the retail sales and Fed Chairman’s speech to gauge a view for the greenback. We expect USDINR(Spot) to trade sideways with a positive bias and quote in the range of 77.40 and 78.20,” Somaiya added.