MUMBAI: The rupee closed at Rs 84.06 mark against the US dollar for the first time on Friday, down 12 paise from Thursday’s closing price of Rs 83.94. It opened at 83.98 and hit a historical low of 84.07 during the session.
A break above the 84 level is significant as the RBI has been defending this threshold for over two months. Friday’s intervention marked the central bank’s continued efforts to prevent sharp moves in currency markets.
Some traders believe the Reserve Bank of India may have allowed the rupee to move above 84 for tactical reasons, anticipating greater volatility in the coming days if the Iran-Israel conflict escalates. Allowing the rupee to weaken now would give the RBI more room to intervene if volatility emerges next week.
Just two weeks ago, the rupee had appreciated to 83.50, buoyed by gains in equities. However, rising crude oil prices and continued foreign capital outflows from Indian equities have created downward pressure. Brent crude oil surged from $69 a barrel at the end of September to $78.92 a barrel in October.
Hariprasad MP, executive director of EbixCash World Money Limited, said: “If the conflict between Israel and Iran escalates, coupled with other geopolitical developments, the rupee may depreciate further.” “The depreciation of the rupee will not have any adverse impact on leisure travellers, There is usually a surge in travel as it coincides with the Durga Puja period, which is unlikely to impact travel demand, although some travelers may be carrying less foreign currency.
The dollar continued to strengthen as expectations of a 50 basis point interest rate cut by the Federal Reserve in November faded, also leading to a weaker rupee. However, any sharp depreciation is likely to be gradual and manageable as the Reserve Bank of India maintains strong foreign exchange reserves, traders said.
“There are concerns about an escalation of the Iran-Israel conflict. The RBI has been intervening mildly at 83.98 and has subsequently allowed the rupee to stabilize at 84.08. The RBI is unlikely to allow any unnecessary volatility in the currency market. Also, today’s rise due to oil payments Heavy outflows. The rupee is expected to fluctuate between 83.50 and 84.25 by the end of December. Additionally, the largest IPO (Hyundai Motor) is scheduled to launch on October 15, which may lead to large inflows,” advises businesses. Forex consultant KN Dey said.
Foreign portfolio investors (FPIs) have been net sellers of Indian equities in the past nine trading days, offloading shares worth Rs 55,000 crore. Gold imports also surged, causing the merchandise trade deficit to hit a 10-month high in August. The widening trade deficit further widened the current account deficit to 1.1% of GDP in the April-June period, putting more pressure on the rupee.
While other Asian currencies have appreciated around 5% in the past two months, the rupee has been essentially flat, reflecting the central bank’s active role in managing currency fluctuations. Support for the rupee is expected to be between 84.20 and 84.35, while resistance is expected to be in the range of 83.70-83.80.
