Rupee Nears Record Low as Dollar Gains

The Indian rupee weakened to around 96.4 per dollar, hovering near record lows after trading flat in the previous session as a stronger US dollar, elevated US Treasury yields and high oil prices increased dollar demand. The dollar index climbed above 102, supported by weakness in the euro amid political and fiscal concerns in the euro zone, while 10 and 30 year US Treasury yields rose to fresh 24 year highs. Meanwhile, foreign equity outflows and persistent importer demand for dollar hedges continued to weigh on the currency, with Indian companies booking a record $77 billion in currency hedges in September, up more than 80% year-on-year. The Reserve Bank of India continued selling dollars to temper the rupee’s decline, although traders expect it to smooth the fall rather than defend a specific level.

The Indian rupee hovered around 96.3 per dollar, pausing losses after reaching two-month lows as softer oil prices and fading bets on a Federal Reserve rate hike this month offered some relief to the currency. Oil prices slipped as rising crude exports from the Middle East and stockpile releases by Group of Seven nations eased supply concerns, while weaker-than-expected US jobs data reduced the probability of a Fed hike to around 20%. However, the dollar remained firm near a 17-month high and elevated US Treasury yields continued to weigh on the rupee. The RBI remained a consistent presence in the foreign exchange market, helping contain the rupee’s decline, although the decisive breach of the 96-per-dollar level has heightened the risk of further weakness. Meanwhile, markets are increasingly pricing an RBI rate hike this week as inflationary pressures broaden, with consumer inflation at 4.82% in August and growth at 7.8% in Q2.

The Indian rupee hovered around 96.3 per dollar on Thursday, extending losses for a third consecutive session as a stronger dollar and rising US Treasury yields weighed on Asian currencies, while likely RBI intervention limited the decline. The dollar index climbed to a more than three-month high as US Treasury yields continued to rise despite softer-than-expected August inflation data. Asian currencies also weakened, while markets continued to price in further Fed tightening, with one rate hike fully priced by December. State-run banks were seen selling dollars, likely on behalf of the RBI, helping keep the rupee above the 96 per dollar level. Elevated oil prices also added to pressure, with Brent crude rising nearly 2% on Wednesday amid stalled US-Iran talks and tightening fuel markets, extending its September rally to about 14%. Markets will be closed on Friday in observance of Mahatma Gandhi Jayanti, with trading resuming on October 5.