the Indian Rupee fell to an all-time low on Monday as it breached the 78 mark against 78 U.S. Dollar for the first time. The local currency opened with a fall of 30 paise at 78.14 per US dollar on Monday, having closed at 77.84 on Friday. A firmer dollar and US Treasury yields, a rise in global crude oil prices and a sharp sell-off in equity markets kept the domestic currency under pressure. The rupee lost 21 paise against the greenback last week. On the other hand, India’s benchmark 10-year bond yield on Monday hit a more than three-year high. The benchmark 10-year bond yield was trading at 7.60 per cent on June 13, the highest since February 28, 2019.
Analysts pointed to several factors behind the rupee’s fall to a lifetime low. Mohit Nigam, Head (PMS), Hem Securities, said, “Some of the reasons for this weakening include continuous FII selling over the past few months, rising bond yields, surging oil prices and inflationary pressures for the coming quarters. “
Rupee breaks 78 per US dollar: Why is rupee falling?
1) The US Consumer Price Index jumped 8.6 per cent in May. It was the largest jump in US inflation to date since December 1981. Rising inflation numbers pushed up the US 10-year yield. The benchmark US 10-year yield touched 3.2 per cent, gaining nearly 12 basis points on Friday after beating US inflation expectations.
2) The US dollar index continued to rally on Monday on the back of warm inflation data and a strong 10-year US yield. The dollar index had hit a nearly four-week high last week. On Friday, it again crossed the 104 mark and closed at 104.235 with a gain of 0.99 percent. The USD-INR June 28 futures contract also closed on a positive note with gains of 0.13 per cent at 77.97. The rising dollar index and the benchmark US 10-year yield dragged the local currency lower on Monday.
3) After decades of high inflation numbers, experts believe the US Federal Reserve will choose a more aggressive approach to quell rising price pressures. The US central bank may go for more than promised interest rate hikes in the coming months. Investors will eagerly follow the June 15 US Federal Open Market Committee meeting for further guidance. A sharp increase in rates will have an impact on the local currency and bullion in future.
4) “On the domestic front, the sentiment is weakening with continued FII sell-offs. FIIs have been net sellers for the eighth consecutive month, with net sales of over Rs 3.45 lakh crore since October 2021,” said Prashant Taapsee, Vice President (Research), Mehta Equities Ltd.
5)” Today’s range for USD/INR pair is 77.80-78.30. Investors’ attention will be on the retail inflation data. Indian bond yields are likely to open higher tracking spike in US Treasury rates, while major focus will be on local retail inflation data. The benchmark 6.54 per cent bond is likely to trade in the 7.50 per cent-7.56 per cent band on Monday,” said Sriram Iyer, senior research analyst at Reliance Securities.
6) “We may see more weakness ahead of the FOMC meeting on June 15, where the Fed is expected to hike rates by 50 bps and show a more aggressive tone. However, runaway depreciation may not happen amid RBI intervention ,” said Jigar Trivedi – Research Analyst- Commodity and Currency Fundamental, Anand Rathi Shares and Stock Brokers.
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