The rupee breached 80 to a dollar in the offshore market and onshore over-the-counter market post-market hours. Even as the Indian currency came near striking distance of touching the level in the spot market. The Indian currency was trading at 80.21 to a dollar. On the spot market, the currency weakened to close at 79.87 on Thursday. The dollar strengthened in anticipation of a percentage-point rate hike by the US Federal Reserve this month. The currency closed at 79.64 on the previous day. Given the pressure on the currency, under normal scenarios, the rupee should touch 80. That said, one cannot be fully sure if the rupee will touch 80 on Friday. If any statement comes, it can open higher.
The rupee has seen a sharp correction this year with the currency plunging from 74 at the start of 2022 to around 80 against the dollar.
The central bank has also been active in the offshore NDF market. It is possible that RBI could intervene before the Indian market opens. The US consumer price index jumped to a 41-year high of 9.1% from a year earlier, the fastest increase since November 1981. Investors are now expecting the Fed to raise interest rates aggressively when it meets on 26-27 July. The largest increase since the Fed started directly using overnight interest rates to conduct monetary policy in the early 1990s. The US central bank has already raised interest rates by 150 basis points in 2022. One basis point is 0.01%. The rupee has seen a sharp correction this year. With the currency plunging from 74 at the start of 2022 to around 80 against the dollar.
Foreign institutional investors have dumped local shares worth $29.5 billion and so far in 2022 and sold bonds worth $1.93 billion. Fed is not just hiking; they are increasing the pace of hikes in every meeting. At the same time, the US yield curve has become inverted. And the inverted yield curve hints at dramatic growth slowdown and even recession. This cocktail of aggressive Fed and growth slowdown is what can hurt flows towards emerging markets; like India, and cause USDINR to rise further. India needs to keep an eye on the Chinese currency and the euro. If they fall further, it can drive USDINR towards 80.50 even.
