Three reasons why Rupee is falling against Dollar

The Indian rupee on Tuesday was near record lows at 77.24 against the US dollar, extending its losses for the third day. The rupee on Monday slumped by 54 paise to close at a record low of 77.44 against the US dollar, pressured by the strength of the American currency overseas and unabated foreign fund outflows.

On Friday, the rupee had slumped 55 paise to close at 76.90.

Forex traders and market trackers said risk appetite has weakened amid rising bond yields in the US and mounting concerns about inflation that may trigger more aggressive rate hikes by global central banks.

STRONGER DOLLAR
Royce Vargheese Joseph – Research Analyst – Currency and Energy, Anand Rathi Shares and Stock Brokers, cited the stronger position of the dollar, sharp sell off in equity markets and elevated crude prices and rising domestic inflation as reasons behind the decline of the Indian Rupee, according to a PTI report.

Joseph said Indian Rupee spot plunged to record lows, tracking weakness in Asian peers amid a stronger dollar index and surging treasury yields in the US.

“Rupee fell to fresh all time lows on Monday as the dollar rose broadly against its major crosses. Last week’s central bank policy action led to heightened volatility in most of the currencies. Stronger dollar and sustained up move in global crude oil price is weighing on the overall market sentiment,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services, PTI reported.

Equity markets witnessed a sharp sell off as real rates in the US turned positive and investors turned risk averse evaluating the need for a higher rate hike to tame inflation going forward, Joseph said.

According to Jateen Trivedi, Senior Research Analyst at LKP Securities, “Dollar staying above USD 104 indicates FII’s aggressively exiting from emerging markets, the higher volatility index indicates no trend is sustainable and due to higher inflation, aggressive liquidity squeeze from central banks pressures rupee altogether. Crude prices have also been rising for a month now, making the rupee even weaker.”

RUPEE TO DOLLAR
“We expect the USDINR (Spot) to trade with a positive bias and quote in the range of 77.20 and 77.80,” Somaiya said.

“Meanwhile, RBI’s off cycle meeting on 4th May did little to strengthen the Rupee. Going forward, we might see the rupee spot weakening towards 77.8 levels,” Joseph said.

“I look at the rupee continuing its downward journey as the dollar rise is a major risk to prices. A relief on the rupee front can only be seen if the dollar index cools off,” Trivedi said.