Rupee falls to fresh lifetime low, slips below 81 for the first time amid strong dollar, high bond yield

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The Indian rupee depreciated further on Friday as it slipped past the 81 mark for the first time ever. Rupee opened at a fresh record low of 81.09 against the US dollar, and slipped further to 81.13, a fresh lifetime low. Volatility and uncertainty have risen as the market comes to grips with a policy regime that is reducing liquidity after a decade of abundance. The strength in US dollar is putting pressure on emerging market currencies including rupee. The domestic currency may face resilience around 81 in anticipation of RBI’s intervention. However, the direction will depend on broad-based dollar movement.

The 10-year bond yield was trading at 7.383% — a level last seen on 25 July, up 7 bps from its previous close of 7.383% The US 10-year treasury yield soared 18 basis points to 3.7% on Thursday, its highest in a decade as traders weighed the risk of recession. Meanwhile, Asian currencies were trading mixed on Friday. China Offshore fell 0.3%, China renminbi 0.27%, Taiwan dollar fell 0.5%. The Philippines peso was up 0.3%, South Korean won gained 0.27%, and the Japanese yen 0.2%.

USDINR resistance at 81.25-81.40, support at 80.12

Spot USDINR now has resistance in the area of 81.25 to 81.40 while the previous top 80.12 is likely to act as support. Asian stocks headed for a sixth weekly decline following another day of losses for US shares and surging Treasury yields that underscore expectations for tighter monetary policy and a slowing global economy, said Dilip Parmar, Research Analyst, HDFC Securities.

Rupee fell 90 paise in the previous session. RBI has been making continuous efforts to limit the losses in the rupee. However, the absence of RBI was felt yesterday as the rupee independently followed the global factors towards achieving its fair value. One of the reasons that RBI couldn’t rescue the fall in the currency was inadequate liquidity in the banking system which is currently in deficit, according to Amit Pabari, MD, CR Forex Advisors.

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Rupee likely to depreciate further, may fall to 82

“RBI’s intervention in the spot market could make the case worst for the banking system liquidity amid short-term interest rates going higher. It will be interesting to watch RBI monetary policy next week as it comes up with some tools to smoothen the liquidity and talks about the current run in the currency and falling reserves. Historically, whenever a big figure in rupee has been taken out, a move of 2.5 rupees an average has been seen within one month of breakout. Overall, with RBI’s absence, the rupee is going to test new lows in the short term and we expect the currency to weaken up to 81.80 and 82.00 levels in the near term,” Pabari added.