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Why is the rupee falling to new all-time lows? Will the Indian currency continue to depreciate?

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Why is the rupee falling to new all-time lows? Will the Indian currency continue to depreciate?

Due to weak fundamentals, the rupee might exceed 78 versus the dollar in the coming sessions, according to experts. Understand what the future holds for the native currency.

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The Indian rupee hit a new low on Friday, owing to a strengthening dollar, a steady outflow of foreign capital from the domestic market, and higher global crude oil prices. On Friday, the rupee fell 11 paise versus the US dollar, closing at a new all-time low of 77.85 (provisional). The native currency fell to a new low of 77.93 during the trading session. During the week, the rupee has shed 21 paise versus the dollar. On the other hand, the dollar index increased by 0.20 percent to 103.43.

Since Russia invaded Ukraine in February, the rupee has been under tremendous pressure. The Indian rupee has lost 2.64 percent in the current fiscal year versus the US dollar.

Recently, the currency has been pulled down by a sell-off in the local market. Since October 20, 2021, foreign institutional investors have pulled Rs 2.5 trillion out of local shares. The Indian operation was put under even more strain when crude oil prices soared in the aftermath of Russia’s invasion of Ukraine and the resulting supply interruption.

The US dollar index and bond rates rose in anticipation of an aggressive rate hike by the US Federal Reserve. Both of these factors contributed significantly to the home currency’s depreciation, according to Heena Imtiaz Naik, research analyst (currencies), Angel One Limited.

Due to weak fundamentals, the rupee might exceed 78 versus the dollar in the coming sessions, according to experts. “Due to weak fundamentals, we predict the rupee spot to reach 78 levels in the next few days.” Increased commodity prices, particularly petroleum, might exacerbate the trade imbalance, which reached a new high of $23.3 billion in May 2022. Meanwhile, the Federal Reserve’s aggressive rate rise cycle might accelerate capital outflows, forcing the current fiscal’s balance of payments to expand even more, “said Jigar Trivedi, research analyst, commodities and currency fundamentals, Anand Rathi Shares & Stock Brokers.

According to Trivedi, the possibility of a Reserve Bank of India (RBI) intervention is to keep the rupee under control.

The RBI has been quite careful to limit the rupee’s damage, and it is still a seller at higher levels. “Still, if the pair continues to trade above 77.80-77.90, a more significant rate of rupee depreciation cannot be ruled out, “Viraj Vyas,” Ashika Group’s technical and derivatives analyst, elaborated.

The US Federal Open Market Committee meeting on June 22nd will be closely watched by investors. For the rupee, the psychological level of 78.30 will be critical. Once the US and its aftereffects have passed, the rupee may begin to fall, “Naik went on to say.”

“We predict the USD INR (Spot) to trade with a bullish bias, gradually approaching 78.50 levels.” In the immediate run, 77.20 will continue to operate as a solid support, “said Gaurang Somaiya, FX and bullion analyst at Motilal Oswal Financial Services.

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