The rupee weakened on Thursday, giving up some of the sharp gains notched up since the end of the last week, as the dollar strengthened ahead of a crucial US inflation data release and as oil companies stepped up purchases of the greenback.
The rupee closed at 81.81 per dollar on Thursday as against 81.43 per dollar at previous close. The local currency has depreciated 9.1 per cent against the greenback so far in 2022.
Over the last three days of trade, the rupee had strengthened sharply against the US dollar, climbing to one-month highs. The domestic currency was at 82.89 on November 3.
The key reasons for the rupee’s recent strength were a resumption of overseas investment in stocks and comments by some members of the Federal Reserve which suggested a slower pace of US rate hikes going ahead.
However, with US consumer price index based inflation due late Thursday, traders turned risk averse as inflation in the country has on many an occasion overshot expectations. A higher-than-expected US inflation print would strengthen the case for the Fed to continue with aggressive rate hikes, which in turn would lead to outflows from emerging markets such as India.
Traders broadly expect the October US CPI print at 8 per cent as against 8.20 per cent the previous month. The Fed’s inflation target is 2 per cent. So far in 2022, the US central bank has hiked rates by a massive 375 bps to rein in inflation.
“USD/INR spot closed higher due to weakness in equity markets and strength in dollar index, ahead of the US CPI data, later in the evening. Over the near term we expect a range of 81.30 and 82.20 on spot,” “Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities said.
Some traders were also of the view that the rupee’s recent appreciation against the US dollar may have been overdone, given fundamental factors such as a widening current account deficit.
“Corporate buying including buying by oil companies and some fixing related buying at lower levels accompanied by upside in US dollar index to 110.50 and fall in Asian currencies took dollar rupee to 81.92,” Finrex Treasury Advisors head of treasury Anil Kumar Bhansali said.
“Yesterday’s move to 81.23 (intraday high for the rupee) seemed excessive and therefore a correction looked imminent. Expecting a range of 81.50 to 83.00 in the coming days,” he said.